For the last three weeks Pakistan’s retail inflation has been increasing by almost 1% per week, surging to a 4-months high on a weekly average. The trend shows top acceleration both, in the Consumer Price Index (CPI) and the SPI (Sensitive Price Index). Now, ironically this is quite contrary to the tall governmental claims of achieving a consistently low inflation cycle and needless to say that it once again puts pressure mainly on food items; an area that has been the real troubling point for the masses. As pointed out, the extent of rise in retail inflation tends to be a worrying one, since its main trigger has been food inflation. In particular, quarterly prices of vegetables, driven by an erratic weather cycle have risen by a staggering 42.7%, oils and fats by 9.5% and fruits by 8.4%. And this not-withstanding the fact that even a decreasing inflation environment in no way implies price reductions, because that does not happen unless the demand significantly erodes unleashing a wave of deflationary cycle, which as we know may be difficult to achieve especially in the food-essentials, given our large population and its rather high growth rate. Also, the last week’s fuel price increases though may be prudent, will nevertheless add to the stubborn-inflation issues that the Pakistani economy seems to be facing. Naturally, the related dangers being that this may put breaks on the State Bank of Pakistan’s (SBP) policy of easing borrowing rates, a direction that was being hailed as the mainstay of the resultant or projected growth and investment outlook. If so, one must point out that it would be a mistake, because time and again the author has argued that Pakistan’s inflation has a much higher correlation with supply-chain bottlenecks as against with interest rates, which in fact, when high, tend to exacerbate the problem. Further, the challenges facing the Pakistani economy can also be flagged to the continuous softening of urban demand. Whereas, in contrast, the rural demand has held ground the indicators suggest that urban demand has been flagging for almost 3 quarters in running. To be specific: FMCG sales moderated from 6% in Q1 of FY24 to 2.8% today; Auto sales continue to decline owing to a reduced demand and competition from cheaper EVs and imported CKD kits; and last but not least, the real estate sector has been struggling on the back of recently introduced unrealistic taxation structures. Somewhere locked into all this is the growth potential and employment generation! The growth under this on-going PDM government has been strikingly low and now beginning to take a toll on the availability of employment opportunities in the economy, thereby pushing more and more people under the poverty line – by some estimates and benchmarks the figure could be more than 40% today. The third quarter corporate results have been disappointing falling prey to the unsustainable taxation slabs levied by this government followed by completely unnecessary and unfair tax drives.

With corporate income tax reaching almost 59% in some cases after accounting for super tax, there remains no incentive to grow or invest (domestic or FDI); marking an end to the volume driven growth story, especially in exports. A recent HSBC report indicates that a) only a minority 15-20% of the economy depicts any kind of growth, b) Investment activity (especially in construction and public-sector led operations) is holding up, c) consumption per se is slowing down, & d) Growth is unlikely to either take off or become more broad-based in the coming months. Take all this together and prima facie it appears that macroeconomic headwinds are beginning to gather yet again over the Pakistani economy. A perception tool that is often misused in developing economies to defend flawed policies is by way of manipulating the stock exchange. Pakistan’s stock exchange has a rather narrow base and by just tweaking a handful of stocks in oil & gas, banking, power, plus one or two other sectors through selected brokerage houses can easily yield the desired results. Sadly, using it inappropriately to justify actions that are perhaps un-defendable makes a glaring mockery of this indicator for any real relevance to the true state of the investors’ minds. At the end of the day what one needs to remember is that people don’t vote for mere statistics. The economics that matter most are those of daily life, and even if the public buys the repeated rhetoric that the country is doing well, it can make the general public more annoyed if it feels it is not a part of it and is missing out. Here in Pakistan also the sense of disconnection between the macro and. micro is manifesting a sense of anger and deep-rooted resentment for this set-up. There is this feeling that largely the stories being spun of an economic turnaround are based on external factors (primarily borrowings) and very little to do with any type of homegrown solutions. Also, while the rulers make hay with self-aggrandisement through rewards, pay increases, perks and lavish life styles, it comes at the expense of people and sucking capital out of productive markets that tend to be the engines of employment generation. The government on the other hand has staked everything on the IMF program, as it is convinced that at least in the short-term the strategy should be to first stabilise the economy, growth can come later. The trouble is that this short-term is now spilling over to almost its fourth year (the same faces since PDM-I) and if they wait for too long to tangibly pass on some kind of relief to the people, its own survival may be in danger, because like it or not, there are no islands of contentment in oceans of political and economic turmoil!

Dr Kamal Monnoo
The writer is an entrepreneur and economic analyst. Email: kamal.monnoo@gmail.com