Qudsia Bano

In the outgoing fiscal year, Pakistan experienced a moderate economic recovery, driven by prudent government policy management and administrative measures that restored market confidence, leading to a pick-up in economic activity. According to the data released by the Finance Division, GDP growth accelerated to 2.4% in FY24, with the agriculture sector expanding by 6.3%, while industry and services grew by 1.2%. The Pakistan Stock Exchange (PSX) surged by 79.5% since July 2023, with the KSE-100 index reaching 78,810 points by June 21, 2024. The large-scale manufacturing (LSM) sector registered a moderate growth of 0.45% during July-April FY24, marking a notable improvement compared to the 8.8% contraction during the same period last year. Despite consecutive negative growth in Q1 and Q2, the LSM sector showed recovery in Q3 of FY24, with nearly 50% of sub-sectors recovering and posting positive growth. Factors such as high inflation, prolonged tight monetary policy, and the slow recovery process in major trading partners contributed to the initial contraction of the LSM sector.

However, these factors are fading, as reflected in the positive growth of the LSM sector. CPI inflation reached its lowest level in 30 months, with YoY inflation recorded at 11.8% in May 2024, a significant decrease from 38.0% in May 2023. This decline can be attributed to monetary tightening, fiscal consolidation, smooth supplies of food items, favourable global commodity prices, and exchange rate stability. The report also says the government's efforts have played a significant role in containing inflation, demonstrating its commitment to price stability.Fiscal accounts improved during July-April FY24 due to various revenue-enhancing and expenditure control measures, reducing the fiscal deficit to 4.5% of GDP from 4.7% last year. Effective management of non-interest spending improved the primary balance to a surplus of 1.5% of GDP, keeping it on track to meet the full-year target of 0.4% of GDP. On the external front, sustained improvement was observed in the current account balance, with a deficit of $0.5 billion for July-May FY24 compared to a deficit of $3.9 billion last year. This improvement is largely due to better trade balance and remittances.

Exports increased by 17.3% YoY to $3.0 billion in May 2024, while imports increased by 34.5% YoY to $5.0 billion. The trade surplus reached $2.0 billion in May 2024 against $1.2 billion last year, mitigated by a 54.2% increase in remittances, reaching $3.2 billion compared to $2.1 billion last year. FDI inflows were also encouraging, recorded at $270.9 million in May 2024 compared to $155.7 million last year. The Monetary Policy Committee (MPC) reduced the policy rate by 150 bps to 20.5% on June 10, 2024, based on moderate GDP growth and receding inflationary pressures, enhancing positive business sentiments. From July 1 to May 31, FY24, money supply (M2) showed growth of 9.6% compared to 8.8% last year. The government remains committed to creating an investment-friendly environment to encourage long-term commitments from potential investors, which is essential for maintaining economic stability.

Credit: INP-WealthPk