The previous week’s article had focused on the growth performance of the economy from July 2024 to March 2025. An assessment was made of the likely level of investment in 2024-25, after the abysmally low level in 2023-24. An analysis was also undertaken of the extraordinary drop in the rate of inflation to a low single-digit. The positive development is that this was due to a big fall in the rates of inflation in food and fuel prices. This article focuses on the trends in the balance of payments and in public finances during the period, July 2024 to March 2025. At the end, an assessment is made of the unemployment and poverty situation. The balance of payments presents a mixed picture. There has been much kudos that a positive surplus has been generated in the current account of dollar 1.9 billion, as compared to a deficit of dollar 1.6 billion in the corresponding period of 2023-24. There has actually been a larger deficit in the balance of trade in goods and services. It has gone up from dollar 18.3 billion to dollar 21 billion, implying thereby a big increase of almost 15 percent. There is also an increase in profit repatriation and interest payments of 14 percent. These developments would normally have implied a significantly larger current account deficit. However, it has come as a very pleasant surprise that there has been a very big increase in remittances of 33.8 percent. They have jumped up from dollar 21 billion to dollar 28 billion. Clearly, the entry of the SBP in the market for purchase of dollars has contributed to this improvement. Turning to the financial account of the balance of payments, there is a very worrying development. The financial account had a significant surplus of dollar 4.5 billion in the first three quarters of 2023-24. This has now been transferred into a deficit of dollar 1.4 billion in the corresponding period of 2024-25. The overall level of foreign investment has remained unchanged at dollar 1.4 billion. However, there has been a fall of dollar 1.6 billion in net inflows to government. Disbursements have declined by dollar 1.6 billion, while the amortization has remained unchanged. Consequently, with a surplus in the current account but a deficit in the financial account, the overall balance of payments in July to March, 2024-25, shows a small surplus of only dollar 0.7 billion. The surplus was significantly larger in the corresponding period of 2023-24 at dollar 2.4 billion. The loan instalment received in both periods from the IMF was just above dollar 1 billion. Therefore, there has only been a modest increase in the foreign exchange reserves of dollar 1.6 billion in the first nine months of 2024-25, as compared to a big jump of dollar 3.6 billion up to March in 2023-24. There is need to emphasize that there is no scope for complacency in the position with regard to the balance of payments. While there was a surplus in the current account, it has been largely neutralized by a deficit in the financial account. The quantitative performance criterion for end-March 2025 in the IMF Programme for net international reserves was dollar 10,200 million. Fortunately, this target has been achieved and the SBP reserves at the end of March 2025 were dollar 10,676 million. We now proceed to examine the trends in public finances. A key indicative target in the IMF programme is the level of FBR revenues. There has been a shortfall every month up to now in 2024-25, including a shortfall of over Rs 100 billion in March. Overall, the cumulative shortfall in the first nine months of the 2024-25 is a large magnitude of Rs 703 billion. At this rate, by the end of the financial year the shortfall will exceed Rs 1,000 billion. Apparently, the IMF has agreed to a reduction in the FBR target by Rs 579 billion in 2024-25. However, the shortfall already exceeds the reduction in the annual target. Another important indicative target in the IMF Programme is the size of the provincial cash surplus. It has been set at Rs 1,028 billion as of end-March 2025. The actual surplus, according to the SBP, as of April 11, is Rs 568 billion. There is one magnitude in the Broad Money (M2) statistics of the SBP which needs to be explained. This relates to the enormous jump in credit to Non-Banking Financial Institutions (NBFIs) of Rs 656 billion. Last year, there was actually a reduction in credit. However, one positive indicator is the huge reduction in borrowing from commercial banks by the federal government. It was Rs 5,332 billion in 2023-24 up to April 12, 2024. It is now much lower at Rs 2,206 billion, as of April 11, 2025. There is finally a need to look at what is happening to the level of unemployment and the incidence of poverty. The Population and Housing Census of 2023 has given an estimate of the rate of unemployment in the country of as high as 22 percent. The big jump was, of course, partly attributable to the effect of the devastating floods in 2022. However, the growth rate of the economy in 2023-24 was a scanty 2.5 percent. This will have led to only a modest jump in the level of employment. Therefore, the unemployment rate is unlikely to have fallen sharply since 2023. The World Bank has recently presented the estimate of the incidence of poverty at 42.3 percent, with the annual increase in the number of poor of 2.6 million. Fortunately, basic food prices have fallen sharply or stabilized. Consequently, the incidence of poverty is unlikely to rise significantly in coming months. Overall, there has been considerable success in bringing down the rate of inflation, but the economy continues to show a very low rate of growth. The balance of payments and the public finances remain somewhat fragile. The unemployment rate and the incidence of poverty are unfortunately at their peak levels. Copyright Business Recorder, 2025