Pakistan Feb inflation to stay in range of 2% to 3%

Pakistan inflation in February is expected to be recorded in the range of 2% to 3%. However, there is a possibility that due to the Ramadan factor-price spiral, inflation could rise within the range of 3% to 4%, according to a report from the Ministry of Finance released on Thursday.

The economic outlook is based on baseline performance of large-scale manufacturing (LSM) index, inflation, fiscal and external sector and economic activities with Pakistan's main trading partners.

To improve the agriculture sector's productivity, the government remains committed to supporting the farmers through various initiatives. Favorable weather plays a crucial role in achieving production targets.

According to the government's weather outlook, the relatively dry conditions may cause water stress for Rabi crops, especially wheat in rain-fed areas.

The recent monthly performance of the LSM sector suggests a potential recovery in upcoming months. In January, LSM growth is expected to be supported by rising imports of machinery and raw materials, along with increased cement dispatches.

Moreover, decline in inflation and the accommodative monetary policy are likely to further boost business confidence to support the LSM recovery, according to the report.

Inflation is anticipated to remain within the range of 2-3% for February. However, there are prospects of a slight increase to 3-4% in March.

Fiscal performance

Fiscal performance during FY25's first half is reflective of the government's effective consolidation measures, which resulted in better expenditure management and improved resource mobilization.

These measures are expected to contain the fiscal deficit at a lower level than the previous year while ensuring fiscal discipline.
Similarly, with non-markup expenditures, the primary surplus is expected to improve further in the coming months.

On the external front, exports, imports, and workers' remittances are expected to maintain their upward trend.

In the coming months, remittances are likely to increase further due to seasonal factors such as Ramadan, Eid-ul-Fitr, and Eid-ul-Adha. Similarly, exports and imports are projected to improve due to the expansion in economic activity. All these factors will help to keep the current account deficit within manageable limits.

Agriculture sector

Regarding the agriculture sector, the Ministry of Finance report said that for the Rabi season 2024-25, wheat has been sown on 22.07 million acres, with an expected production of 27.9 million tons.

The utilization of farm inputs is progressing effectively, supported by government initiatives to enhance agricultural productivity through the provision of improved seeds, agricultural credit, farm machinery, and fertilizers.

During Jul-Nov FY25, agricultural credit disbursement rose to PKR 925.7 billion, an 8.5% increase from PKR 853.0 billion in the same period last year, supporting the annual target of PKR 2,572.3 billion.

Agricultural machinery and implements imports increased by 42.5% to $69.2 million in July-Jan FY25 compared to the same period last year demonstrating a growing focus on mechanization.

Urea offtake during Rabi 2024-25 (Oct-Jan) was recorded at 2,449 thousand tons (6% higher than Rabi 2023-24) whereas DAP offtake was 758 thousand tons (17.7% higher than Rabi 2023-24).

Large-scale manufacturing

Large-Scale Manufacturing exhibited a strong recovery, growing by 19.1% in December compared to the previous month.
However, on a yearly basis, LSM declined by 3.7% compared to 3.1% growth last year. During Jul-Dec FY25, LSM posted a decline of 1.9% compared to a contraction of 1.0% in the corresponding period of FY24.

Sectoral trends highlight a mixed performance, 10 out of 22 sectors showed a positive growth including automobiles (50.2%), other transport equipment (25.7%), tobacco (19.2%), wearing apparel (9.5%), and textiles (2.1%), among others.

During Jul-Jan FY25, the performance of the automobile sector remained encouraging as overall production increased by 28.9% and sales by 29.1%. The major growth drivers in the production remained cars (45.8%), trucks and buses (122.6%), jeeps and pick-ups (76.3%) while tractor production showed a decline of 30.0%.

In January, total cement dispatches increased by 14.1% to 3.9 million tons compared to 3.4 million tons last year. Local cement dispatches (3.3 million tons) showed an increase of 11.6%, while export dispatches rose by 30.2%, with volumes increasing to 581,691 tons.