Pakistan's inflation expected to remain below 5% in December

Pakistan's inflation is projected to stay within the 4% to 5% range in December, thanks to exchange rate stability and controlled food prices, according to a report released by the Ministry of Finance on Friday.

The report highlights improved fiscal performance from July to October, driven by higher revenues and prudent expenditure management, which is expected to create fiscal space for development spending and support sustainable economic growth.

The easing of monetary policy in December is anticipated to stimulate economic activity.

The government is committed to achieving crop production targets by supporting farmers, although weather conditions, such as below-normal rainfall, may pose challenges during the critical emerging stage of Rabi crops like wheat and barley, especially in rain-fed agricultural zones.

Despite challenges in certain industrial sectors, the economy's resilience is underscored by the robust performance of high-weighted sectors, which continued to drive large-scale manufacturing (LSM) in October.

The automobile and cement sectors exhibited strong performance in November, providing a critical boost to their allied industries. The interconnectedness of industrial sectors may reinforce a broader growth trajectory.

The rising demand for credit, especially from the private sector, signals growing confidence in the economy. This momentum is expected to accelerate, fostering higher production levels and enhanced economic output in the coming months.

Stability is expected to continue on the back of remittances and export inflows, with decent imports.

Fiscal Management

Ministry of Finance reported that during July-November FY2025, the Federal Board of Revenue (FBR) tax collection grew by 23.3% to PKR 4,295 billion, compared to PKR 3,485 billion last year. Direct taxes rose by 27%, sales taxes by 23.6%, federal excise duty by 25.1%, and customs duty by 8%.

Net federal revenues grew by 71.8% to PKR 4,822 billion, primarily driven by a sharp increase in non-tax collection, which grew by 101.2% to PKR 3,192 billion.

Tax collection increased to PKR 3,443 billion from PKR 2,748 billion last year.

Prudent expenditure management helped contain expenditure growth to 20.6% relative to high revenue growth.

Total expenditures reached PKR 4,472 billion, up from PKR 3,707 billion last year.

Consequently, the fiscal balance posted a surplus of PKR 495 billion (0.4% of GDP) against a deficit of PKR 862 billion (-0.8% of GDP) last year.

The primary surplus increased to PKR 3,124 billion (3.0% of GDP) from PKR 1,430 billion (1.4% of GDP) last year.

Agriculture

For Rabi 2024-25, the government has set a wheat production target of 27.920 million tons from an area of 9.262 million hectares.

Efforts are underway to ensure the timely availability of essential farm inputs, including agricultural credit, quality seeds, fertilizers, and mechanization support.

Meanwhile, agriculture credit disbursement reached PKR 925.7 billion during July-November FY25, an increase of 8.5% compared to PKR 853.0 billion during the same period last year.

The positive trend is expected to persist, aligning with the ambitious agriculture credit target of PKR 2,572.3 billion for FY25.

Agricultural machinery imports rose by 42.3%, amounting to $45.3 million, highlighting a growing emphasis on mechanization and efficiency improvements.

For the Rabi 2024-25 season (October-November 2024), urea offtake totaled 1,012 thousand tons, a 5.4% decline compared to October-November 2023.

In contrast, DAP offtake increased by 27.4%, reaching 559 thousand tons, attributed to the Punjab Government's initiative of providing interest-free loans to small farmers through the Kissan Card Program for the purchase of agricultural inputs.