Wheat crop may fall below 28m tons
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The Ministry of Finance said on Thursday that wheat production may fall 11% to below 28 million metric tons this year due to dry weather conditions but inflation would remain stable around 3% in February.
In its monthly economic outlook, the finance ministry stated that the upward trend in exports, imports and foreign remittances would continue in February too, indicating a current account deficit for the second consecutive month.
The report said that favourable weather played a crucial role in achieving production targets. According to Pakistan Meteorological Department's weather outlook, the relatively dry conditions may cause water stress for Rabi crops, especially wheat in rain-fed areas, it added.
According to the finance ministry, wheat production is expected to be 27.9 million tonnes this year, down 3.5 million metric tons, or 11.1%. Last year, the country had a bumper wheat harvest of 31.4 million metric tons.
The production is far lower than the country's requirements and it may have to import the commodity.
In October last year, the Ministry of Food had informed Prime Minister Shehbaz Sharif that the failure to set wheat price and make procurement for the second consecutive year could discourage farmers from planting enough crop for local consumption. This, the ministry warned, might result in wheat imports valuing at more than $1 billion.
Federal and provincial governments did not announce wheat support price and implemented the International Monetary Fund (IMF) condition one year in advance.
The Ministry of National Food Security had proposed to the prime minister that he may instruct the announcement of a profitable support price and procurement targets for Rabi sowing season 2024-25 in consultation with provinces and publicise that the policy would be discontinued from Rabi 2025-26 in line with IMF programme commitments.
However, the government did not accept the food ministry's advice. In 2023, the federal government had fixed wheat support price at Rs3,900 per 40 kg based on an estimated average cost of production of Rs3,304 per 40 kg. This gave about 18% profit margin to farmers.
The food ministry was of the view that the IMF programme required full deregulation effective from fiscal year 2025-26, beyond Rabi 2024-25. It said that there was a need for a clear policy direction on wheat pricing and procurement needs to be enunciated by the federal government in consultation with provinces.
The finance ministry stated in its outlook that inflation was anticipated to remain within the range of 2% to 3% in February 2025, however, there were prospects of a slight increase to 4% by March.
The inflation rate stood at 2.4% in January. The central bank has so far cut its policy rate by 10 percentage points to 12% but it is still far higher than the prevailing inflation rate.
During December, large-scale manufacturing (LSM) contracted 3.7% compared to 3.1% growth in the previous year. During the first half (Jul-Dec) of the current fiscal year, the LSM sector posted a decline of 1.9% compared to a contraction of 1% in the corresponding period of FY24.
The finance ministry said that the recent monthly performance of big manufacturing industries suggested a potential recovery in upcoming months. In January, the LSM growth is expected to be supported by rising imports of machinery and raw materials along with increased cement dispatches.
Moreover, the decline in inflation and an accommodative monetary policy were likely to further boost business confidence and support LSM recovery, said the ministry.
The economic outlook is based on the baseline performance of LSM, inflation, fiscal and external sectors as well as economic activities in Pakistan's main trading partners. On the external front, exports, imports and workers' remittances were expected to maintain their upward trend, said the ministry.
Pakistan recorded inflows of $20.8 billion in remittances during the first seven months of the current fiscal year, marking a 31.7% increase over $15.8 billion last year. The largest share of 24.7% came from Saudi Arabia, followed by 20.2% from the UAE.
In the coming months, remittances are likely to increase further due to seasonal factors such as Ramazan and two Eid festivals. Similarly, exports and imports are projected to improve due to the expansion in economic activity. All these factors would help to keep the current account deficit within manageable limits, it added.
The ministry claimed that Pakistan's economy continued to demonstrate positive developments during the first seven months of FY25, as reflected in improvements in key economic indicators.
The external sector position has significantly improved, driven by continued increase in exports and workers' remittances despite an upward trend in imports.
In January 2025, the current account recorded a deficit of $420 million, compared to a deficit of $404 million in January 2024.
Imports of goods reached $33.3 billion against $30 billion last year, showing a 10.9% increase. This resulted in a (goods) trade deficit of $14.1 billion as compared to $12.2 billion last year.
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