SBP revises inflation and current account balance estimates for FY25

The Governor of the State Bank of Pakistan (SBP), Jameel Ahmed, has announced revised estimates for inflation and the current account balance for the current fiscal year.

The fiscal year average inflation outlook has been revised down to a range of 5.5% to 7.5%, significantly lower than the earlier estimate of 11.5%.

Similarly, the current account balance for FY25 has been revised to a range of a 0.5% deficit to a 0.5% surplus of GDP.

Previously, the central bank projected a deficit range of 0.0% to 1.0%.

Provisional data for Q1-FY25 shows a modest GDP growth of 0.9%, compared to a 2.3% growth recorded in Q1-FY24.

This slowdown is primarily attributed to a sharp deceleration in agricultural sector growth, which fell to 1.2% in Q1-FY25 from 8.1% in the same period last year.

Meanwhile, the decline in industrial sector growth in Q1-FY25 moderated compared to last year. The Monetary Policy Committee (MPC) noted that the downturn in large-scale manufacturing (LSM) was driven by a few low-weight items, such as furniture.

In contrast, key industrial sectors like textiles, food and beverages, and automobiles have shown noticeable improvement. The business confidence index has continued to show positive sentiments.

Addressing a press conference on Monday to announce the Monetary Policy, Jameel Ahmed stated that the SBP maintained its GDP growth forecast at a range of 2.5% to 3.5.

He also projected that SBP’s foreign exchange reserves would reach $13 billion by the end of the fiscal year.

Based on current trends, particularly robust workers' remittances, the outlook for the current account balance has improved considerably and is now expected to remain between a surplus and a deficit of 0.5% of GDP in FY25.

Net financial inflows, though tepid during H1-FY25, are expected to improve going forward, as a significant portion of official debt repayments has already been made.

Consequently, the improved current account outlook, along with the expected realization of planned financial inflows, is likely to increase SBP’s foreign exchange reserves beyond $13 billion by June 2025.

The monetary policy statement noted that Federal Board of Revenue (FBR) revenues recorded a notable increase of around 26% during H1-FY25.

However, the shortfall in tax collection from the target has widened, indicating that a steep acceleration in tax revenue growth will be required to achieve the annual target.

Estimates suggest an improvement in the fiscal balance during H1-FY25, indicating relatively contained expenditures.

The Committee also noted that the anticipated lower interest payments than budgeted are likely to contain the overall fiscal deficit around its target, but achieving the primary balance target would be challenging.