- Pakistan’s Finance Ministry predicts a drop in inflation to 12-13% for July and 11-12% for August, with hopes for single-digit rates soon.
- The State Bank of Pakistan has reduced interest rates for the second time, aligning with a slight cooling in inflation.
- Economic improvements include better agricultural performance, a rebound in large-scale manufacturing, and a significant reduction in the fiscal deficit.
The Finance Ministry of Pakistan has forecasted a decrease in inflation rates for July, estimating them to fall between 12% and 13%, with a further drop expected in August to a range of 11% to 12%. The ministry expressed optimism about reaching single-digit inflation rates in the near future. The update highlights a positive shift in economic conditions, including a surplus in the primary fiscal account and a stable exchange rate.
In response to cooling inflation, the State Bank of Pakistan (SBP) has reduced the interest rate by 1% for the second consecutive time, lowering it from 20.5% to 19.5%. SBP Governor Jameel Ahmad noted that inflation is on a declining trend. This move aligns with market expectations and aims to further stabilize the economy.
The report also points to improvements in the real sector, with agriculture performing well and large-scale manufacturing showing promising growth. Large-scale manufacturing expanded by 1.0% from July to May 2024, reversing last year’s contraction. Notably, the Consumer Price Index (CPI) reached the edge of single digits in June 2024.
The external account position has strengthened due to controlled imports and increased exports and remittances. The government has reduced the fiscal deficit to 4.9% of GDP, down from 5.5% the previous year. Additionally, Pakistan has reached a staff-level agreement with the IMF on a 37-month Extended Fund Facility Arrangement worth $7 billion, which includes measures like higher taxes and increased electricity prices.
While the government’s efforts to stabilize the economy are evident, concerns remain among poor and middle-class citizens facing potential inflation and tax hikes. Recent protests have emerged, with some parties threatening sit-ins if the government fails to address rising prices.
