Economic conditions improved in the first half of this financial year, State Bank

Karachi: Bank Daulat Pakistan released the first half report of the financial year 24 titled “State of Pakistani Economy” according to which the economic conditions of the country have improved during the first half of the financial year 24.

The report contains an analysis of data for July-December FY24, according to which real economic activity has recovered moderately in contrast to last year’s contraction, while the Temporary Arrangement (SBA) with the IMF has eased pressure on the external account. I helped.

The current account deficit narrowed significantly due to continuation of tight monetary and fiscal policies, improvement in agricultural production and decline in global commodity prices, the report said.

On the financial side, the primary balance during the first half of FY24 was in surplus as compared to the first half of FY23 due to reasonable growth in both tax and non-tax revenues which was more than the increase in non-interest expenses. According to the report, despite domestic demand being limited, inflationary pressure remained at a high level.

During the first half of FY24, real GDP grew by 1.7% due to the agriculture sector. The recovery in the agriculture sector also helped some agro-based industries. Additionally, according to the report, the removal of import-restrictive measures improved the availability of raw materials for the industry.

The IMF’s approval of SBA eased external borrowing constraints, which led to an increase in financial inflows during the first half of FY24. Apart from this, the external debt payments remained low during the period under review as compared to the first half of FY23 and the current account deficit significantly decreased due to the decrease in imports and increase in exports, which led to a significant decrease in the foreign exchange of the State Bank. Reserves increased.

The report states that despite the limited domestic demand and decline in global commodity prices, National Consumer Price Index (NCPI) inflation remained high due to long-standing structural issues, compared to the first half of FY23 in the rupee value. There were shortages, increased government spending and supply shocks.

During the first half of the fiscal year 24, the reasons for maintaining inflation include the high cost of raw materials, increase in indirect taxes, and the implementation of the increase in the minimum wage announced in the budget of the fiscal year 24, apart from food and energy items. The effects of the revision of official prices were included.

The report highlighted that despite some improvements in economic performance, the economy continues to face structural constraints. The major problems faced include limited savings, low investment in physical and human capital, low productivity, stagnant exports, low number of taxpayers, and inefficiency of public sector enterprises.

At the same time, the uncertain political situation worsened the situation due to inconsistency in economic policies, weak governance and public administration, barriers to investment, which hampered economic growth. There is a need for policy reforms to ensure sustainable growth in the medium to long term.

The report includes a special chapter, which analyzes the long-term trends in inflation in Pakistan and its determinants. The chapter also highlights the policy and structural factors affecting inflation, including the monetary policy framework, fiscal and credit policy, trade openness, agricultural efficiency, productivity and demographic trends.

The chapter concludes that improving political and policy uncertainty and further fiscal consolidation could help bring down inflation sharply in the short run. The chapter also emphasizes on solving long-standing structural problems to reduce and stabilize inflation in the medium term without burdening monetary policy and, consequently, paying a high economic cost.

In the report, the economic recovery is expected to continue during the second half of FY24. In view of improving business confidence, higher frequency demand from November 2023 onwards and improved prospects of good wheat production during FY24, State Bank has projected real GDP growth of 2-3% for FY24. is predicted to be in between.

On the other hand, despite the continued uncertainty in both the domestic economy and the international commodity market, the decline in national consumer price index inflation is expected to continue.

Keeping these changes in mind, the State Bank has projected the average national consumer price index inflation for FY24 to be between 23.0 and 25.0 percent, down from 29.2 percent in FY23 and by September 2025. It is expected to further decrease to 5 to 7 percent.

In terms of external accounts, the current account deficit is likely to be lower than earlier estimates due to a slight improvement in the global scenario and domestic growth prospects, which could result in increased foreign exchange earnings through exports and remittances. are

The State Bank has forecast the current account deficit to be between 0.5 to 1.5 percent of GDP for FY24. This economic scenario will continue to be influenced by increasing geo-political tensions, unfavorable weather conditions, negative fluctuations in global oil prices and these factors will result in pressure on the external accounts.

Further fluctuations in energy prices and fiscal consolidation, which are needed to slow the pace of debt growth, could also weigh on economic activity and inflation, the semi-annual report said.

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