Stabilization measures contribute to positive economic outlook: report

ISLAMABAD (APP) - The stabilization measures, encouraging business confidence coupled with exchange rate stability, contributed to a positive economic outlook for Pakistan amidst ongoing challenges, Finance Ministry said in a recent report.

“Last few months measures have restored market confidence and led to a pick-up in economic activity,” says monthly Economic Update and Outlook for February 2024 released by Finance Ministry here on Thursday

According to the report, the Gross Domestic Product (GDP) growth accelerated to 2.1% in first quarter (Q1) of Fiscal Year 2024, after two consecutive quarters of negative growth. The growth was broad-based with the agriculture sector posting 5% growth and manufacturing activity registering 2.5% growth.

In particular, the removal of the import ban and other import restrictions have eased supply constraints, leading to pick-up in economic activity. Data from Quarter 2 FY2024 shows stronger performance of the manufacturing sector, with large scale manufacturing posting 8.2% increase over Q1.

The report predicted Q2 FY2024 GDP growth to rise to around 3% on stronger manufacturing output and higher production of crops including cotton, which has increased by 75% to 8.35 million bales.

The caretaker government has taken steps to reduce unproductive expenditures and boost tax and non-tax income. During Jul-Dec FY2024, the government has run a primary surplus of Rs 1.5 trillion (1.4% of GDP) against International Monetary Fund Standby Agreement (SBA) target of 0.5% of GDP.

Difficult and unpopular measures including a reduction in the subsidy bill on power and gas through timely implementation of quarterly tariffs helped improve primary account. No supplementary grants have been issued during this period and PSDP projects that fall under the provincial domain have been transferred to provincial ADPs.

At the same time, the release of funds has been increased for 9.3 million most vulnerable households. On the revenue side, the FBR Tax collection grew by 30% to Rs 5.15 trillion during July-January FY2024 despite a slowdown in imports and 0% GST on petroleum products.

Overall growth in the domestic taxes has increased by 40%, with the rebound in economic activity and rise in profitability of companies including Banks, Oil & Gas, and the manufacturing industry.

Import taxes posted a growth of 16% due to improvements in the valuation of imports that yielded Rs 151 billion in collections as well as the anti-smuggling drive that witnessed almost 69% growth in FY2024.

The improvement in the fiscal position has helped the government to reduce the accumulation of public debt. Net domestic borrowing has decreased by 67% to Rs 1.9 trillion, from Rs 5.8 trillion in the preceding period. The lower domestic borrowing, lower cost of borrowing on margin (below the SBP policy rate) and extended maturity profile helped lower net domestic borrowing.