Finance

Inflation rate to be eased to 5pc in medium-term

Karachi, December 30, 2019: The government is doing much better than the International Monetary Fund projection with respect to most of the macroeconomic indicators including inflation rate which is expected to come down to around 5 percent in the medium term, spokesman of ministry of finance said.

With regard to inflation outlook, IMF has lowered Inflation projection for FY 2019-20 to 11.8 percent, down from 13 percent earlier on account of this fact that the administrative and energy tariff adjustments are expected to offset the effects from weak domestic demand, thereafter, inflation is expected to converge to 5-7 percent.

However, the Pakistan government would do much better than IMF projection, as inflation during July-November was 10.8 percent and with measures taken the target of inflation would be brought down to 5 percent over the medium term, the spokesman said in a statement issued here on Sunday.

With regard to the external sector, significant improvement has been witnessed. Overall, Current Account Deficit (CAD) has shrunk by almost two-thirds (74 percent) in the Q1 FY 20 compared to the same period of FY 2019.

The CAD is projected to decline to 2.4 percent of GDP in FY20 (4.9 percent), which is lower than earlier IMF forecasts of 2.6 percent.

Similarly, total imports also fell by 23 percent year-on-year in Q1 of FY2020, but imports of machinery and equipment were more resilient, rising about 2 percent y-o-y. Exports are showing some sign of recovery, up 2 percent y-o-y for the same period with 17 percent volume growth, mainly driven by food and textiles.

The report states that transition to a market determined exchange rate has allowed the rupee to find its new equilibrium quickly, thereby, successfully correcting the ‘exchange rate overvaluation’ of the last 5 years.

Referring to a recent report published by IMF, the finance ministry statement said that the report had also acknowledged strong fiscal performance in the First Quarter of FY2020 while stating Primary surplus of 0.6 percent of GDP and an overall deficit of 0.6 percent of GDP, about 1 percent of GDP better than programmed.

In addition, Tax revenue growth was in double-digits (net of refunds) even though customs receipts and other external sector related taxes have suffered due to import compression.

The spokesman added that during first half of FY2019-20, government non tax revenue collection has hit Rs 878 billion which was 75 percent of full year budgeted collection of Rs 1.16 trillion which is positive for growth and will ease the burden on public and businesses.

With respect to government performance on economic front, the spokesman added that Pakistan economy had witnessed significant improvements in recent months.

He said exchange rate is stable for five months, rupee appreciated by 3.2 percent (Rs/$ 160.1 to 154.89), Stock Exchange 100-Index up 20.1 percent since first July, 2019 (33,996) to 40,832, SBP FX reserves increased to $ 10.8 billion, from 7.2 billion, ease of doing index up by 28 points (108/190) and World Bank rank Pakistan in top 10 improvers.

After 4 years of outflow, total foreign portfolio investment up $1.2 billion during Jul-Nov FY20 compared to minus 330 million last year.

Foreign Direct Investment increased to 850 million compared to 477.3 million last year showing an increase of 78.1 percent.

Similarly, incorporation of companies increased 25.8 percent (7,177 from 5,707) during Jul-Nov FY2020.

FBR tax collection grew by 16.8 percent to Rs 1615.2 billion during July-November, FY2020 against Rs 1382.9 billion last year.

Within total FBR tax collection domestic tax collection grew up 21.5 percent and Import taxes down 2.6 percent due to import compression.

On external side, Exports increased by 4.7 percent to $10.31 billion during July-November, FY2020 against $9.85 billion in the same period last year, while Imports decreased by 21.1 percent to $18.31 billion during July-November, FY2020 against $23.22 billion in the same period last year.

Consequently, trade deficit decreased 40.1 percent to $8.002 billion during July-November, FY2020 against $13.36 billion in the comparable period of last year.

Cement dispatches increased by 5.8 percent to 20.462 million ton (15.4million ton). Cement export also increased by 21.5 percent to 3.608 million ton (2.4 million ton).

Furthermore the spokesman said Public Sector Development Programme (PSDP) releases system is accelerated.

As a major development, PSX has become best performing market as per Bloomberg in last three months. PSX benchmark KSE 100-Index gained around 10,500 point in last three months.

Similarly, the Moody’s Investors Service upgraded Pakistan’s credit rating outlook to stable from negative.

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