The Ministry of Finance expects the current account balance to move to equilibrium or even a slight surplus in the coming months.
“Trade balance will improve in the coming months on account of import contraction due to a deceleration in domestic economic activities and aggregate demand. However, the exports scenario may improve due to the revival of infrastructure in flood areas of the country,” said the Ministry of Finance’s Monthly Economic Update & Outlook for October.
It said that remittances are also expected to revert back to around the level of $ 2.7 billion. Therefore, in the baseline scenario, the current account balance is expected to move to equilibrium or even a slight surplus.
The report said that large-scale relief and rehabilitation requirements resulting from the catastrophic floods have posed significant challenges to fiscal consolidation efforts.
“Since government needs to allocate higher resources for the rescue and rehabilitation of flood victims and the rebuilding of infrastructure, there will be significant pressure on overall expenditures,” the report said.
The report mentioned that despite import compression, the zero rates of Sales Tax on POL items, and the flood situation, the Federal Board of Revenue (FBR) tax collection in the first quarter of the current fiscal year has been remarkable on the back of an effective revenue mobilization strategy.
However, an expected slowdown in economic activity and growth due to the devastation triggered by the floods may impact domestic resource mobilization efforts, the report added.
The report said that the declining international commodity prices are expected to offset the inflation spikes that emerged due to domestic supply shocks.
“Nevertheless, it can be expected that YoY CPI inflation in the month of October will maintain its declining tendency observed in September. It is expected that CPI inflation will remain in the range of 21-22.5%,” the report said.
The report said that the overall economic outlook shows an optimistic picture of the economic performance in the coming months. The CPI inflation is declining, the rupee has gained stability, and the current account balance is on an improving trend.
“These development indicate that economic activity will remain positive and persistent in coming months,” the report added.
