Finance: Economy amidst geopolitics

In July 2024, the first month of the new fiscal year FY25, Pakistan’s trade deficit soared 19.7 per cent to $1.9 billion as imports grew much faster than exports. Month-on-month national consumer inflation in July hit an eight-month high of 2.1pc, when it is generally around 1pc. Imports will surely continue to expand throughout this fiscal year and exports’ growth will likely remain slower than imports. This will widen the trade deficit and put additional pressure on the current account, increasing our reliance on home remittances. However, inflation may start losing pace in the coming months as the interest rate cuts in May to 20.5pc and July to 19.5pc facilitate higher aggregate output in the economy. The challenge of containing food inflation — 4.5pc in urban areas and 3.6pc in rural areas in July 2024 — may, however, prove too difficult in the coming months.