Between July 1 and July 26 of fiscal year 2024-25, credit to the private sector recorded a significant contraction, standing at Rs -326.9 billion. This marks a sharp increase in decline, with a 91.1 percent greater reduction compared to the Rs -171.1 billion recorded during the same period in the previous fiscal year. Despite this significant statistic, the August 2024 Monthly Update & Outlook released on Friday made no reference to this figure, raising questions about a potential typographical error.
The Finance Ministry, in its outlook, projected that inflation is expected to decrease to a single-digit range, between 9.5-10.5 percent in August, and further decline to 9-10 percent by September 2024. The report highlighted a stable economic outlook, with expectations that exports will range between $2.5-3.2 billion, imports between $4.5-5.0 billion, and worker’s remittances between $2.6-3.3 billion in August 2024.
The report emphasized that the stability of the external sector relies on factors such as a stable exchange rate, revived domestic economic activities, better agricultural output, lower domestic and global commodity prices, and improved foreign demand.
For agriculture, the Kharif 2024 crop production is dependent on specific weather patterns, which will critically influence crop yields. Recent and ongoing rainfall could positively or negatively impact the production of rice, sugarcane, cotton, fodder, and vegetables, depending on the extent of flooding in farmlands.
In the industrial sector, the Large Scale Manufacturing (LSM) sector is expected to maintain a positive growth trajectory in fiscal year 2025, supported by improved external demand, a stable exchange rate, receding inflation, and easing monetary policy.
The outlook further noted that Pakistan’s economy started fiscal year 2025 with strong positive developments. A reduction in the Consumer Price Index (CPI) inflation in July 2024 suggested that the economy is on track to achieve single-digit inflation in the coming months. Both fiscal and external sectors have shown resilience, attributed to improved management. The current account balance has improved, and the Federal Board of Revenue (FBR) exceeded its tax collection targets.
The government successfully reduced the fiscal deficit to 6.8 percent of GDP in fiscal year 2024, down from 7.8 percent in the previous year. The primary balance also showed a surplus of 0.9 percent of GDP, contrasting with a 1.0 percent deficit in fiscal year 2023. Total revenues saw a 38 percent growth, driven by notable increases in both tax and non-tax collections, with non-tax revenue growing by 75.4 percent to Rs 3183.3 billion.
Large Scale Manufacturing (LSM) grew by 0.9 percent in fiscal year 2024, reversing a 10.3 percent contraction in the previous year. However, a slight 0.03 percent year-on-year decline in LSM was observed in June 2024 due to reduced production in sectors like textiles, non-metallic minerals, beverages, iron & steel, automobiles, and tobacco.
In July fiscal year 2025, the auto industry began to recover, with a 15.3 percent increase in vehicle production and a 16.9 percent rise in sales. Cement dispatches, however, recorded a 6.8 percent year-on-year decline, totaling 3.0 million tonnes.
The report also highlighted that agricultural credit disbursement increased by 24.8 percent during fiscal year 2024, reaching Rs 2,216 billion. Meanwhile, urea offtake during the Kharif 2024 season (April-July) decreased by 13.5 percent compared to Kharif 2023, while DAP offtake saw an 8.2 percent increase.
A significant decline in cotton arrivals was reported, with total bales dropping from 0.858 million in 2023-24 to 0.442 million in 2024-25. Both Punjab and Sindh experienced reductions in cotton arrivals.
The current account deficit in July fiscal year 2025 narrowed to $0.2 billion, down from $0.7 billion last year. Goods exports rose by 12.9 percent, reaching $2.4 billion, while imports grew by 16.3 percent to $4.8 billion, resulting in a goods trade deficit of $2.4 billion. The export of services increased by 5.8 percent, while imports declined by 8.0 percent, leading to a reduced deficit. Workers’ remittances surged by 47.6 percent, reaching $3.0 billion in July fiscal year 2025.
Pakistan’s total liquid foreign exchange reserves stood at $14.8 billion as of August 23, 2024, with the State Bank of Pakistan (SBP) holding $9.4 billion. Foreign Direct Investment (FDI) increased by 63.7 percent, reaching $136 million.
The report noted that disbursements under the Public Sector Development Programme (PSDP) were reduced by 1.5 percent, totaling Rs 732 billion in 2023-24.
With inflationary pressures diminishing, the Monetary Policy Committee (MPC) lowered the policy rate by 100 basis points to 19.5 percent, effective from July 30, 2024. Money supply (M2) contracted by 3.2 percent during the first month of fiscal year 2024-25, compared to a 2.0 percent decline in the same period last year. The adjustment in the policy rate is expected to anchor inflationary expectations and support sustainable economic recovery in fiscal year 2025.
