The Finance Ministry has warned that the challenge of higher markup payments persists as it rises to 63 percent during the first four months of the current fiscal year.
The Ministry of Finance in the monthly Economic Update and Outlook December 2023 stated that cautious expenditure management played an instrumental role in controlling non-essential spending, however, the challenge of higher markup payments persists.
Considering this, the government will continue the current fiscal strategy to achieve set targets, emphasizing both revenue enhancement and prudent expenditure control.
The report states that CPI inflation was recorded at 29.2 percent on a YoY basis in November 2023 as compared to 23.8 percent in November 2022.
Major drivers contributing to YoY increase in CPI include Alcoholic Beverages and tobacco (82.8%), Furnishing and household equipment maintenance (34.5%), nonperishable food items (31.7%), Housing, Water, Electricity, gas and fuel (33.0%), Transport (26.5%), Health (24.9%), Clothing & Footwear (20.9%) and Perishable food items (9.6%).
Meanwhile, A substantial increase in revenues compared to expenditures brought down the fiscal deficit to 0.8 percent of GDP (Rs.861.7 billion) in Jul-Oct FY2024 from 1.5 percent of GDP (Rs.1265.8 billion) last year.
The primary surplus continued to improve owing to contained growth in non-markup spending and recorded Rs.1429.7 billion (1.4 percent of GDP) during Jul-oct FY2024 from Rs.136.2 billion (0.2 percent of GDP) last year.
Total expenditures grew by 35 percent to Rs.3706.7 billion during Jul-Oct FY2024 against Rs.2737.2 billion last year.
Within total, current spending grew by 44 percent mainly due to a significant rise in markup payments that increased by 63 percent during the first four months of the current fiscal year, while non-markup spending witnessed a restricted growth of 19 percent on account of the government’s cautious expenditure management strategy.
The Report states that the Current Account posted a deficit of $1.16 billion for Jul-Nov FY2024 against a deficit of $ 3.3 billion last year, largely reflecting an improvement in the trade balance.
Exports (fob) increased by 5.0 percent and reached $ 12.5 billion ($ 11.9 billion last year). Imports (fob) declined by 16.0 percent reaching $ 21.3 billion ($ 25.3 billion last year).
Resultantly, the trade deficit was recorded at $ 8.8 billion as against $13.4 billion last year.
The inflation outlook for the remaining months of FY2024 is seen at a moderate level despite the upward revision of administered prices (gas prices). This is on account of a stable exchange rate, contained aggregate demand, better supply position, moderation in the international commodity prices, and favorable base effect.
Keeping in view the better supply position and easing out the imported inflation along with the high base effect will help to contain the inflationary pressure ahead.
Inflation is anticipated to remain around 27.5-28.5 percent in December 2023 and further ease out to 24-25 percent in January 2024.
The report concluded that despite significant challenges, the overall economic outlook is optimistic marked by receding inflationary pressures, positive prospects in agriculture, signs of potential recovery in the industrial sector reflected by positive trends in high-frequency indicators, imports, and a favorable external environment.
The optimistic economic outlook is also evident by the 2.13 percent growth achieved in the first quarter of FY2024, largely contributed by agriculture and industry.
Further, the twin deficit is on a downward trajectory signifying better economic management to reduce the macroeconomic imbalances. This lays the foundation for progressing towards higher and sustainable economic growth. It is therefore expected that this positive momentum will further strengthen in the upcoming months.
