A stable Pak Rupee, decreased petrol prices since September 2023, and a substantial fall in inflation are some of the best happenings that have taken place in a year or so. This positive development, it appears, did not get the required attention that it deserved in the media.
It is regrettable that the topic does not consistently make significant headlines or breaking news. Sadly, however, little negative economic issues are given more space.
Where have the economic experts disappeared and why are they unwilling to address the facts and offer helpful guidance? It’s also true that the country still has a long way to go in fixing its economic issues, and this is only the start of the process.
Policymakers should be mindful of the risk and consequences associated with an economic crisis, which could recur if these are not adequately addressed. To be honest, it was widely expected that food prices would remain steady while vegetable prices would fall so rapidly.
For instance, who would have thought that the rates of green peas would have fallen from Rs 300/kg to less than Rs 50/kg? Tomato’s price declined from Rs 350/kg (the highest) to Rs 40–50/kg (perhaps the lowest), or almost all other vegetables such as onion, potato and okra would have their prices cut by half as compared to what they were just a year ago?
The prices of fruits are steady and reduced. The price of petrol, which was Rs 320/litre, has decreased by around 23%. All of these have contributed significantly towards efforts aimed at containing inflation, which has now dropped from about 38% to 2.4%.
However, it is certain that inflation will increase following the base rate revision.
Pak Rupee or PKR has been quite stable during the past 18 to 24 months, compared to other Asian currencies, with the exception of the Malaysian Ringgit and the Philippines Peso, which have both recovered. The stability of PKR has been aided by the favourable economic conditions during this period.
Furthermore, it is a standard practice worldwide for central banks to buy and sell their currencies outright or to carry out transactions through forward trading and/or swap facilities in order to protect their currency from speculation and volatility.
In this writer’s view, USD/PKR parity could be in line with emerging markets in order to remain competitive in exports and to take into account the external pressures on regional currencies.
The state of the balance of payments and outside inflows will determine a lot. The fact that oil prices are declining in the global market is a sign of relief and will lessen the strain on the oil bill.
Nevertheless, it will be preferable to prevent the SBP policy rate from declining further and to bring it closer to the level of inflation. However, in order to maintain economic stability and fulfil the IMF’s obligations, numerous corrective actions are required. Reductions in policy rates will only reduce the debt load and lower borrowing costs when credit is rolled over.
However, if credit to the private sector doesn’t considerably increase, it won’t have much of an impact.
Information technology (IT) is one area that requires immediate attention and the required concessions and accommodation. This needs to be examined as soon as possible and bank loans to the agriculture sector should double in order to modernise the sector.
The economy benefits most from home remittances. Despite concessions and rebates, however, the growth of the economy is hamstrung by poor export performance.
The Advances to Deposit Ratio (ADR) may be increasing in the SBP books, but actual credit to the private sector contradicts these assessments. SBP can simply use its monetary tools to compel banks that they must fulfill their obligation towards fuelling economy. SBP’s Monetary Policy Committee (MPC) can play a meaningful role in relation to the objective of higher economic growth.
In sum, the economy’s success is a source of satisfaction. However, the trend requires regular redesigning. We must not lose sight of the fact that the economy requires constant long-term structural adjustments to maintain stability because short- to medium-term success is insufficient to support it.
Finally, a helpful reminder: the holy month of Ramazan is just around the corner. The prices of essential kitchen items, including vegetables and fruits, should be strictly monitored by policymakers, who must also ensure that inflation remains under control. Consumers, too, can play a crucial role in this regard by avoiding the purchase of Ramazan items at excessively high prices.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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