EDITORIAL: The November Economic Update and Outlook uploaded on the Finance Division website notes three positive indicators: remittance rise by 9.3 percent July-October 2026 against the same period last year, a rise of foreign exchange reserves to USD 14.5 billion on 14 November 2025 against USD 11.3 billion on 15 November 2024, large-scale manufacturing sector (LSM) growth of 4.08 percent July-September 2025 against negative -0.90 percent July-September 2024. However, the caveats implicit in these positive indicators that would have assisted the economic team leaders in taking informed decisions in a timely manner were, as in the previous monthly updates not mentioned.
Analysts may well argue that the leverage of the economic team leaders is severely limited with little room for negotiating a more phased reform agenda — a limitation that the International Monetary Fund (IMF) team under all three programmes since 2019, has bared by not agreeing to the staff-level agreement, a prerequisite for the release of the next tranche, followed by three friendly countries refusing to extend their rollovers of over USD 12 billion.
To increase leverage required in-house reforms, particularly slashing current expenditure reflective of elite capture. The budget for the current year envisages a rise in domestic borrowing but a decline in the budgeted mark-up payments on the assumption that the discount rate would be reduced from the existing 11 percent.
In this context, it is relevant to note that the leverage of the Monetary Policy Committee to revise the discount rate is also limited, reflected by keeping the discount rate unchanged even during times when inflation was plummeting. The Fund in its 15 October press release warned the government yet again that the State Bank of Pakistan must maintain an appropriately tight and data dependent monetary policy and given that the Fund noted “important shortcomings” in the source data that prompted a technical assistance (began in July 2025 to end June 2026) on the Government Finance Statistics any attempt to reduce the discount rate in the short term may raise Fund’s concerns.
It is relevant to note that in spite of the high discount rate, the highest in the region, portfolio investment registered negative USD 538.5 million (July-October 2025) against positive USD 185.7 million in the same period last year.
Secondly, foreign exchange reserves have increased though as noted above they are almost entirely sourced to external debt or in other words the rise in remittance inflows has not arrested the decline in the current account balance — negative USD 733 million (July-October 2025) against negative USD 206 million in the same period the year before.
And finally, with respect to important data shortcomings for sectors accounting for around a third of Gross Domestic Product the increase in LSM is raising eyebrows for two reasons: (i) there have been recent reports of many multinationals exiting the country, including those with decades long presence; and (ii) local industries have been complaining about the withdrawal of subsidies — monetary, fiscal and utility pricing – as part and parcel of the ongoing IMF programme conditions with closures accounting for the recent upgrade in unemployment rates in the country.
Be that as it may, the July-August rise in LSM may be reversed in the following two months (October to November) which may explain the rise in unemployment and equally possible is the rise in LSM that is not sourced to output but to a drawdown of inventories that may indicate an upswing in sales suppressed for the past two years.
The Federal Board of Revenue (FBR) collections have risen by 11.4 percent in July-September 2026 compared to the same period last year; however, data released by the FBR indicates that in spite of the downward revised target from 14,130 billion rupees to 13,979 billion rupees the shortfall of 315 billion rupees July-November 2025 may presage the need to further downgrade the target.
The Federal Finance Minister hinted at reducing taxes with the objective of luring the evaders and avoiders in to the tax net, but this maybe a challenge, given that over 75 to 80 percent of all collections are from indirect taxes whose incidence on the poor is greater than on the rich.
To conclude, the economy remains extremely fragile and giving a spin to show an improved performance than is in fact the case is a long-standing practice that is continuing in spite of the fact that this narrative is simply not finding any traction within the general public.
Copyright Business Recorder, 2025