Pakistan’s inflation is expected to ease to 20-22 percent in the current fiscal (FY24), according to Governor’s Annual Report 2022-23 issued on Friday by the State Bank of Pakistan (SBP).
The Report acknowledges the central bank’s responsibility of achieving and maintaining price stability while also emphasizing on the role of fiscal policy and effective administration for price and financial stability, particularly rationalization of government spending, increasing revenue collection, strengthening food and energy supply chains, and enhancing productivity.
The report asserts that the central bank will continue to take decisions to prevent high inflation from becoming entrenched and keep inflation expectations anchored to achieve the medium term target of 5-7 percent by the end of FY25, with FY24 inflation moderating to 20 -22 percent on account of the impact of contractionary monetary policy, improvements in domestic supplies, softer non-energy global commodity prices, and the high base effect.
However, the report added, that this outlook hinges on the absence of adverse shocks stemming from geo-political tensions and unforeseen climate events, and unfavorable movements in global commodity prices.
The report notes that the average headline National Consumer Price Index inflation surged to 29.2 percent in FY23 around the upper bound of the SBP’s revised inflation projection range of 27-29 percent for FY23.
This was in line with multi-decade high inflation in most advanced and emerging economies that maintained an aggressive monetary policy stance, the Report added. While elevated global commodity prices contributed to high inflation outturns, the pressure on external account and ensuing exchange rate depreciation also contributed to inflationary pressures amid uncertainty over the completion of the 9th review of the IMF’s EFF program, inadequate external inflows and continued scheduled debt repayments.
This was in addition to the pass-through of costlier fuel and food prices; exchange rate depreciation; increases in energy prices and indirect taxes; high inflationary expectations and ensuing growth in wages.
The report also notes that political uncertainty weighed on business and consumer sentiments, and thus on economic activity. Real GDP contracted by 0.2 percent, and budgetary targets for the government’s fiscal and primary balances were missed by large margins amid less than planned tax revenues, and lower than budgeted reduction in subsidies. This was despite notable, albeit delayed, fiscal policy measures in the second half of the year, the report said.
There are two different worlds. One inside of their offices from where they imagine the inflation etc and second is the real world outside of SBP where we live and inflation is increasing.