Despite considerable challenges both at domestic and external fronts; the fiscal sector performance remained satisfactory, according to latest report released by the finance ministry here. “The government has been able to restrict the fiscal deficit in terms of GDP at the same level as last year while the primary balance remained in surplus,” says the monthly Economic Update and Outlook for January 2023. According to the report, the improvement is largely attributed to government’s prudent expenditure management strategy, which resulted in a 3.9 percent decline in federal non-mark-up expenditures on the back of decline in subsidies and grant. The current policy stance has enabled the government to increase expenditures on vulnerable segments of society through Benazir Income Support Programme (BISP) and poverty alleviation fund. On the revenue side, despite slowdown in economic activity, tax and non-tax collection have improved. Particularly, FBR tax collection have maintained its growth trajectory above 18 percent during first seven months of current fiscal year. Encouragingly, domestic tax collection, in particular direct taxes are growing at rapid pace indicating effective implementation of administrative and enforcement measures. Although risks to domestic resource mobilization efforts persist due to economic activity and growth slowdown. However, continuing efforts to boost tax collection would aid in meeting the full year target. Similarly, recently enacted PKR 170 billion additional taxes may support further improving the tax collection. The stabilization policy of the government has been successful in improving current account deficit by 67 percent reduction during first seven months of the current fiscal year whereas the non-markup current expenditures are also significantly reduced to contain fiscal deficit. During the first half of the current fiscal year, interest payments on the government’s debt significantly contribute to the total expenditures, which can limit the government’s fiscal space to carry out its normal operations, investments, and social and structural policies if the trend continues. A couple of weeks ago, the market has corrected to minimize the difference between inter-bank and open market exchange rates whereas more recently, it is corrected by 5 percent appreciation of the Pakistani Rupee given its economic fundamentals, according to the report. According to the report, inflation is anticipated to remain high in the coming months before easing out gradually. It is expected that inflation will remain around 28 to 30 percent in coming months. The key reasons are uncertain political and economic environment, pass through of currency depreciation, recent rise in energy prices and increase in administered prices. On agriculture side, as of now, the favorable weather conditions and the uptake of inputs by the farmers are expected to play their positive role in meeting the wheat target of 28.4 million Tonnes. Further, the disbursements made under the Kissan package will have positive impact on the agriculture productivity and overall economic activity. For January, LSM is expected to grow as compared to the previous month, partly due to seasonal factors. Measured on YoY basis, LSM output may marginally decline, mainly due to the high base effect in the reference period.