Stubborn stagflation amid hazy political outlook

The economy is projected to grow at two to three per cent, and the average inflation rate is expected to decline in the range of 20-22pc in FY24, from 29.2pc in FY23, according to the latest State Bank of Pakistan’s (SBP) monetary policy statement. And to quote SBP Governor Jamil Ahmed, economic uncertainty has decreased since the last Monetary Policy Committee (MPC) meeting two months ago, whereas near-term external sector challenges have largely been addressed. In July, the trade deficit was significantly reduced by 41pc to $1.61 billion owing to a substantial fall in imports below $4bn, whereas, in July last year, the deficit was recorded at $2.73bn. However, the central bank also acknowledged the possible risks to its perceived near-term macroeconomic trends. Merchandise export on a month-to-month basis dipped by 12.6pc in July (declining for the 11th month in a row), while the government has set an annual export target of $30bn for FY24. Inflation measured by Consumer Price Index surged to 28.3pc in the first month of the current fiscal year mainly due to the rise in food and energy prices. And on August 2, Finance Minister Ishaq Dar announced a massive hike of Rs20 in petrol and diesel prices, taking them to Rs272.95 and Rs273.40 per litre, respectively.