The Ministry of Finance (MoF) has said that Pakistan's economy is still facing significant challenges owing to high inflation and an economic slowdown. However, the recent surplus in the balance of payment (Bop) would provide a breather.
In its ‘Monthly Economic Update & Outlook', the ministry said that headline inflation (CPI) is expected to remain at an elevated level in the months to come.
“Its key drivers are food and energy price hikes. Further, currency depreciation and rising administered prices have contributed to jack up overall price level,” read the report.
The Ministry of Finance admitted that despite the contractionary monetary policy of the State Bank of Pakistan (SBP), inflationary expectations are not settling down.
“Inflation is expected to remain in the range of 36-38% for April, 2023,” it said.
Ministry of Finance warns inflation to remain high, could increase further
The monthly report said despite high inflation, some positive signals appear as a result of the government's policies.
“For instance, the current account of the BOP turned into a surplus. This might improve the external financing constraint, contribute to more exchange rate stability, and promote confidence in the economy.
“Further, successful completion of IMF program will pave the way to attract more capital inflows, further stabilisation in the exchange rate and alleviating the inflationary pressures,” it added.
During the month of March, remittances from Overseas Workers increased by 27% on MoM basis to $2.5 billion in March 2023 as compared to $1.99 billion in February 2023. On account of “improved situation after exchange rate adjustments, Ramzan and Eid factor played an instrumental role to attract higher proceeds.”
“All above favourable factors have been translated in current account which turned to surplus of $654 million in the month of March, this is the level observed after November 2020,” said the report.
The report projected that during the month of April, imports are expected to increase “at higher level as compared to March due to government decision for some relaxation in pro-growth imports, to stimulate domestic economic activities”.
“However, remittances will remain at same level as observed in March. Accordingly, all these factors will contribute in curtailing the overall current account deficit,” added the report.