The fiscal deficit was recorded at 0.9 per cent of gross domestic product (GDP) during the first two months of the current fiscal year against the deficit of 0.7 per cent of GDP during the corresponding period of last year. According to the monthly Economic Update and Outlook October 2022 released by the Ministry of Finance, the fiscal deficit during July-August (2022-23) was recorded at Rs.672 billion against the deficit of Rs.462 billion during July-August (2022-22). Meanwhile, according to the outlook, the primary balance posted a deficit of Rs.90 billion in July-August FY2023 against the deficit of Rs37 billion in the comparable period of last year. In the first two months of the current fiscal year, net federal revenues grew by 12.3 per cent to Rs 528 billion as compared to Rs 470 billion in the same period of last year. The growth has been realized on the back of an increase in both tax and non-tax revenues. On the other hand, total expenditures increased to Rs1320 billion in July-August FY2023 up from Rs 1104 billion in the last year, posting a growth of 19.6 per cent. The provisional net tax collection in September FY2023 stood at Rs 684.8 billion against Rs 534.0 billion in the same month of last year, posting a growth of 28.2 per cent. Thus, the first quarter of the current fiscal year ended up with a growth of 17.0 per cent with a net tax collection of Rs 1633.9 billion against Rs1396.4 billion in the comparable period of last year. Similarly, the target for the first quarter has also been surpassed by Rs24.4 billion. Within total tax collection, direct taxes posted a healthy growth of 41.8 per cent followed by FED at 11.6 per cent and customs at 5.1 per. Meanwhile, according to the report, the trade balance of Pakistan is expected to improve in the coming months on account of import contraction due to a deceleration in domestic economic activities and aggregate demand. “Overall economic outlook shows an optimistic picture of the economic performance in the coming months. The CPI inflation is declining, the rupee has gained stability, and the current account balance is on improving trend. These development indicate that economic activity will remain positive and persistent in coming months”, the report added. It said for the future path of inflation, the exchange rate is of utmost importance. Moderating inflation also contributes to exchange rate stability, which in the benign case may generate a virtuous inflation-exchange rate cycle. Further, exchange rate stability requires sound economic fundamentals. Besides inflation, also a manageable current account deficit and guaranteed financing of this deficit by healthy financial inflows are required. When markets get convinced about these prospects, speculative bubbles in the exchange market would be highly unlikely.