Pakistan sees inflation easing, growth picking up as IMF deal nears end

By Staff Reporter

ISLAMABAD: The finance ministry said on Thursday that high interest rates and limited fiscal space were hampering the country’s economic recovery, as it projected inflation to ease slightly in the coming months.

In its monthly economic report, the ministry said the restrictive stance of monetary policy and the need to reduce debt had posed “numerous challenges to stimulating the economy”, which had been struggling with a balance of payments crisis and weak growth.

Pakistan secured a $3 billion bailout from the International Monetary Fund (IMF) in July 2023 and the programme will successfully end in April. The country is likely to secure another $6 billion arrangement with the IMF in May.

The State Bank of Pakistan (SBP) has kept its policy rate unchanged at 22 percent since August 2023, one of the highest in the world, to curb inflation and support the rupee, which has depreciated by about 40 percent since 2021.

The finance ministry said it expected inflation, which touched 28.3 percent in January, to moderate to 24.5-25.5 percent in February and 23.5-24.5 percent in March, mainly due to lower food prices and a favourable base effect, despite higher energy and transport costs.

“The inflation outlook for the upcoming month is expected to have a downward trend, primarily due to a decrease in the prices of perishable items on the back of better crops and ease in supplies,” the ministry said.

It added that the high base effect from last year would also help contain inflationary pressures.
The ministry’s report came a day before the Pakistan Bureau of Statistics (PBS) was due to release the inflation data for February.

The central bank also raised its inflation forecast for the fiscal year ending in June to 23-25 percent, from 20-22 percent, due to higher gas and electricity tariffs.

The ministry also said there was “some optimism” regarding Pakistan’s export markets, as the weighted average cyclical conditions in its main trading partners were improving, which would boost export-oriented industries and overall economic growth.

“Despite some important headwinds, the Monthly Economic Indicator (MEI) remains in positive territory, indicating a gradual recovery in economic activities,” the report said.

It added that industrial activity in December was positive despite some sectoral slowdowns, and that the stabilization measures taken by the government had encouraged business confidence and exchange rate stability.

“Consequently, a positive economic outlook for Pakistan amidst ongoing challenges is envisaged,” the report said.