The Ministry of Finance has released its latest Monthly Economic Update & Outlook (May), warning that inflation is likely to rise ahead of the upcoming national budget. The report projects the inflation rate for this month to remain between 1.5% and 2%, but it could increase to 3% to 4% in the next month.
In comparison, April saw a much lower inflation rate of just 0.3%, marking a significant shift in economic conditions. The anticipated rise in inflation is expected to impact the upcoming budget, with several factors contributing to the increase.
The report also highlighted some positive economic trends. Exports and remittances are on the rise, while large-scale manufacturing (LSM) is gradually recovering. Vehicle production and raw material imports have both increased, signaling a rebound in the industrial sector.
However, LSM showed a slight decline of 1.47% from July to March, indicating ongoing challenges in some areas of production. On the brighter side, the report forecasts improved agricultural output due to favorable weather conditions and better water availability, which could boost overall economic growth.
Key economic indicators from the past 10 months of the fiscal year also paint a mixed picture. Remittances have surged by 30.9%, reaching $31.21 billion, while exports grew by 6.8%, totaling $27.27 billion. Imports, however, increased by 11.8%, reaching $48.61 billion. This imbalance in trade continues to put pressure on the economy.
The current account showed a surplus of $1.88 billion between July and April, and the State Bank of Pakistan’s foreign exchange reserves have risen to $11.4 billion during the same period.
On the fiscal front, the Ministry of Finance reported a 26.3% increase in tax revenue, amounting to ₨9.3 trillion from July to April. Non-tax revenue saw an even bigger jump, rising 69.9% to ₨4.099 trillion.
Despite these gains, foreign direct investment (FDI) dropped by 2.8%, totaling $1.78 billion during the same period. This decline in FDI could pose challenges for long-term growth prospects.
As the government prepares to announce the new budget, the Finance Ministry has signaled that rising inflation, along with other economic variables, could play a significant role in shaping fiscal policies in the coming months.
