Economic Update and Outlook

EDITORIAL: The Finance Division released its February Economic Update and Outlook with three positive indicators — a rise in remittances by 31.7 percent July-January 2025 against the same period the year before and consumer price index (CPI) of 6.5 percent July-January 2025 compared to 28.3 percent for the comparable period the year before; and credit to the private sector has risen from 246.8 billion rupees (July to 16 February 2024) to 742.1 billion rupees in the comparable period of this year.

The rise in remittances has been evident ever since the abandonment of the disastrously flawed policy to artificially control the rupee-dollar parity with appallingly low foreign exchange reserves led to a decline of 4 billion dollars in remittance inflows in 2022-23.

Incentivising remittance inflows through official channels has further strengthened remittances since. The CPI has witnessed a dramatic decline; however, the actual effects of this decline are largely applicable to those who have witnessed a wage increase commensurate to inflation during the past three to four years.

Sadly, this is a small number, around 7 percent of the workforce of the country whose salaries have been raised in each budget and who are paid at the taxpayers’ expense.

The remaining 93 percent, working in the private sector, have witnessed little if any wage increase for the past four to five years and today, in spite of the reduced inflation, are grappling with an income that has declined from 25 to 30 percent in terms of its purchasing power.

In addition, independent economists argue that the CPI is understated on three counts: (i) only subsidised electricity rate is taken into account; (ii) subsidised rates of essentials that are not even available at Utility Stores are taken into account; and (iii) rents are grossly understated.

Credit to the private sector, declared as the engine of growth repeatedly by Finance Minister Muhammad Aurangzeb, rose by an impressive 200 percent; however, besides the fact that the base was too low and hence the actual rise cannot lead to the conclusion that domestic output rose meaningfully there is evidence that the bulk of this rise was channeled into the stock market, which is not an indicator of higher output or a rise in employment opportunities — two elements that are the major objectives of any political government.

This is strengthened by the fact that large-scale manufacturing (LSM) sector registered negative 1.87 percent July-December 2024 as opposed to negative 0.98 percent in the same period of the year before and negative 3.73 percent in December 2024 against positive 3 percent in December 2023.

In this context, it is relevant to note that the Update focused on “LSM exhibiting a string of month on month recovery, growing by 19.1 percent in December 2024 compared to November 2024.”

This claim is not backed by previous monthly Economic Update and Outlook. There was no January Update and Outlook and instead a half yearly Economic Update and Outlook was uploaded on the Finance Division website, which noted November LSM growth at negative 3.81 percent; hence the negative 3.73 percent in December does not indicate a 19.1 percent increase month on month.

The report argues that agricultural production is expected to benefit from government initiatives and increased investment in farm mechanisation but expectations are not always realised though one would hope for the best.

Exports rose by 7.6 percent July-January this year compared to the year before but imports rose by a higher percentage of 10.9 percent which implies the current account deficit would again resurface as and when the import limitations are lifted entirely as and when external factors that promoted our exports cease to be effective (notably the rice export ban by India is already lifted and the Bangladesh political situation has somehow stabilised).

Foreign direct investment rose by 25.6 percent — from 1346.6 to 1972 million dollars — remaining at a very low level and not even a small fraction of the amount of total memoranda of understanding signed in recent months that have yet to be translated into binding contracts.

Needless to say, Pakistan’s economy remains extremely fragile and one can only hope that the government expedites the implementation of specified reforms which have the capacity to turn the economy around.

Copyright Business Recorder, 2025