Inflation in Pakistan to remain high in months to come: ministry

The ministry issues monthly economic update and outlook for February

LAHORE (Web Desk) - The ministry of finance (MoF) has warned that inflation in the country is expected to remain high in the coming months owing to several reasons before easing out gradually. The ministry has projected the inflation could hover around 28 to 30 per cent.

The ministry's monthly economic update and outlook for February shows that interest payments would add to total expenditures, limiting the fiscal space to carry out normal operations, investments, and social and structural policies.

The report highlights key reasons of uncertain political and economic environment, pass-through of currency depreciation, the recent rise in energy prices and increase in administered prices for high inflation.

Inflationary pressures will take some time to settle despite a contractionary monetary policy of the State Bank of Pakistan (SBP).

The federal government, in liaison with provincial governments, is closely monitoring the demand-supply gap of essential items and taking necessary measures to stabilise prices, the report stated.

The resumption of an economic stabilisation programme would help achieve economic and exchange rate stabilisation, while also providing an opportunity to reap the benefits of falling international commodity prices.

“This will also help contain cost-push inflation and provide a cushion to the government to pass through the lower commodity prices to domestic consumers,” it said.

The report said favourable weather and uptake of inputs by farmers should help meet 28.4 million tonnes wheat target, whereas Kissan package disbursements too should have a positive impact on agricultural productivity and overall economic activity.

Large-scale manufacturing's (LSM) cyclical pattern positively correlated with the cyclical position of Pakistan’s main trading partners, and in December 2022, LSM activity came in as expected, implying that no unexpected shocks appeared in that month.

However, the international economic environment remains uncertain. This was illustrated by the CLI in Pakistan’s main export areas, which were somehow negative as compared to historical standards.

On the balance of payment data, exports of goods decreased by 11.7% on YoY basis in January 2023 and exports of services increased by 17.3%, which can be justified due to the economic slowdown in traditional export destinations of Pakistan.

A negative seasonal effect in January led to a 4.3% MoM decline in total exports, whereas the import contraction trend continued. Thus, a significant improvement in the trade balance was transmitted in the current account deficit, which stood at $242 million as compared $290 million in December.

Remittance inflows also observed a negative seasonal effect in January, declining to $1,894 million as compared to $2,102 million in December 2022.  

The finance ministry expects LSM to grow in January compared to the previous month, partly due to seasonal factors.

“Measured on YoY basis, LSM output may marginally decline, mainly due to the high base effect in the reference period,” the ministry forecast.

The automobile industry experienced a significant decline in production and sales during Jul-Jan FY2023 due to import compression strategies and tight auto financing.

Car production and sales decreased by 38.6 per cent and 43.1 per cent, respectively, while trucks and buses production and sales decreased by 29.1 per cent and 37.1 per cent, respectively.

The total cement dispatches also declined by 18 per cent, to 25.8 million tons during Jul-Jan 2023, as compared to 31.4 million tons during the same period last year.