Mohammad Arshad Islamabad
The country is likely to witness an increase of inflation from 7.9 to 9.5 percent in April. Recent developments in inflation show that the declining trend observed in recent months was interrupted in February.
Thus both YoY and MoM inflation increased. Recently, the Government implemented policy measures to improve the functioning of some segments of food market and to re-enforce the supply chain of particular food products.
These interventions contribute to contain inflationary pressure in those markets. These measures have dampened the direct impact and the expected second round effects on other CPI components. On the other hand, international commodity prices are recently on a rising trend.
In the last four months, oil prices and international food prices have been rising continuously.
From Feb till Apr 2020, international commodity prices were declining and during that period, the CPI level actually declined.
According to report compiled by Finance Division, this low base effect may temporarily push YoY inflation higher in the next few months.
However, the government measures to ensure smooth supply especially through Ramzan Package will ease out inflationary pressures.
The expectations of economic recovery are strengthening on the basis of improvement in business confidence evident from industrial growth.
The government’s fiscal stimulus thus succeeded in improving economic as well as social prospects.
Therefore, the State Bank of Pakistan in its recent Monetary Policy Statement is now projecting higher growth in FY 2021 compared to its previous anticipation.
As the third wave of pandemic is posing downside risk, the government timely measures combined with the observance of SoPs by the general public will be helpful in continuation of economic recovery along with decelerating inflationary pressure and preserving external balance.
Prospects of economic growth are showing visible signs of improvement, however, the third wave of the pandemic is posing some downward risks.
The fiscal performance from Jul-Jan, FY2021 shows that the fiscal consolidation policy helped in preserving fiscal discipline, increasing revenues, and controlling expenditures.
On the revenue side, the FBR tax collection continues to improve, having exceeded the eight-month target by Rs 17 billion.
Eight months performance indicates that it will remain on track and the current fiscal year would end up meeting the set target.
However, the increase in COVID infection and related containment measures may pose certain challenges, especially the expenditure side may come under pressure.
During Jul-Feb FY 2021, exports of goods and services, as compiled in the Balance of Payments reached 19.9 billion USD as compared to 20.3 billion in the same period of last year.