By Staff Reporter
ISLAMABAD: Pakistan’s inflation is expected to ease to between 1.5% and 2% in May, building on a record-low 0.3% in April, as cooling prices signal a strengthening economic recovery.
The downturn in consumer prices, coupled with a recent credit rating upgrade from Fitch Ratings, is boosting confidence in the country’s fiscal and external outlook, a monthly economic report by the Finance Ministry said on Thursday.
April’s year-on-year inflation rate of 0.3% marked a steep decline from 17.3% a year earlier and 0.7% in March, driven by falling food and energy costs. Over the first 10 months of fiscal 2025 (July to April), inflation averaged 4.73%, a sharp improvement from 25.97% in the same period last year.
The Ministry sees the slowdown persisting into May, though it projects a potential uptick to 3%-4% in June. The State Bank of Pakistan forecasts annual inflation for the fiscal year ending June 2025 at 5.5%-7.5%.
The economy gained traction in May, supported by robust fiscal and external metrics. Fitch Ratings upgraded Pakistan’s credit rating, pointing to tighter fiscal discipline, a current account surplus, and moderating prices as evidence of stabilization.
Revenue growth has outstripped spending, shrinking the fiscal deficit and bolstering the primary surplus, the report noted. Total revenue for July to March FY2025 surged 36.7% to 13.36 trillion rupees ($48 billion), up from 9.78 trillion rupees a year earlier. Non-tax revenues led the charge, soaring 68% to 4.229 trillion rupees, fueled by profits from the State Bank of Pakistan, petroleum levies, dividends, and surcharges.
Tax collection by the Federal Board of Revenue also climbed, rising 26.3% to 9.3 trillion rupees in July-April FY2025 from 7.36 trillion rupees the previous year.
On the external front, the current account flipped to a $1.9 billion surplus in the same period, reversing a $1.3 billion deficit a year ago. The turnaround owes much to strong export growth and a remittances boom, despite higher imports. The ministry expects exports and remittances to keep rising, holding the current account in a “manageable range” through the coming months.
With disinflation taking root, the State Bank of Pakistan moved to support growth, cutting its key interest rate by 100 basis points to 11% on May 5, effective the next day. The Monetary Policy Committee tied the decision to “inflation declining sharply during March and April, mainly due to a reduction in administered electricity prices and continued downtrend in food inflation.”
The rate cut reflects a shift to a more accommodative stance, a response to inflation hitting record lows and easing pressure on consumers and businesses alike.
The Large-Scale Manufacturing sector, a key economic driver, may see gradual improvement in the months ahead, the ministry said. While year-on-year contraction persists and month-on-month output dipped recently, glimmers of hope are emerging. Rising automobile production, raw material imports, and the central bank’s softer monetary policy are stoking cautious optimism.
Agriculture, too, is poised for a lift. Better weather and increased water availability should boost crop yields and farming conditions, feeding into broader economic growth, the report added.
“The outlook for LSM may improve gradually in coming months, with recovery expected to be gradual amid continued YoY contraction and recent MoM decline,” the ministry said. “Improved weather conditions and increased water availability are likely to support higher crop yields and better farming conditions contributing to overall economic growth.”
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