FeaturedNationalVOLUME 18 ISSUE # 12

Depressing forecasts

New national and international forecasts about the Pakistan economy raise concerns about inflation, jobs and poverty. As if current sufferings are not enough, the projections show the country and its people will have to face even bigger challenges on national and international fronts.

The textile industry, which accounts for over 60pc of national exports, is on the verge of collapse. About seven million people in the industry have been laid off after low exports and the economic crisis. Pakistan’s exports have plunged by 15.4pc to 2.2 billion in January 2023, against $2.61 billion in the same month last year, making it the fourth consecutive decline. According to the Finance Ministry, exports are constrained by domestic production issues related to the slowdown of demand in main export markets and high domestic production costs. “Imports are currently constrained by sluggish domestic demand and administrative measures to protect the official foreign reserves level. Since no immediate reversal of these developments is envisaged, the trade balance may further stabilise or improve somewhat in the upcoming month,” it noted in its monthly report.

In comparison, Bangladesh exports surged to over $5 billion for a third consecutive month in January. Its exports increased by 5.89pc year-on-year to $5.13 billion in January, according to the data released by the Export Promotion Bureau. However, the figure was below the target of $5.25 billion set by the government, falling short by 2.1pc.

On the other hand, the Pakistani rupee is fast losing its value against the US dollar and experts fear it will settle at around 300 against the foreign currency. It will further increase prices in the country. Fitch Solutions has projected Pakistan’s economic growth to contract by 0.3pc in the current fiscal year. The US-based global research agency anticipated that the current cycle of rupee devaluation has not yet ended. “The rupee will continue to lose its value against the US dollar, considering high demand for the foreign currency to pay for imports and repay colossal foreign debt,” it noted in its latest report. Accordingly, the country’s economic challenges are going to multiply, going forward, it said. “It (rupee devaluation) could exacerbate imported inflationary pressure and may eventually result in steeper policy rate hikes from the SBP. These factors will only exacerbate Pakistan’s challenging economic outlook,” it feared.

The inflation rate in Pakistan jumped to a 48-year high in January because of a double-digit hike in the cost of almost all essential goods. The Consumer Price Index (CPI) rose by 27.6pc in January compared to the same period last year. According to the Pakistan Bureau of Statistics (PBS), it is the highest reading since May 1975, when the CPI hit 27.8pc. According to media reports, around 9,000 containers of food items, raw materials and other imported goods have been stuck at ports due to shortages of foreign currency.

Pakistan’s inflation rate is the 19th highest in the world, which may further increase because of the rupee devaluation, a hike in the electricity tariff and imposition of more taxes to meet International Monetary Fund (IMF) demands. The inflation rate skyrocketed to 32.3pc in rural areas, while it rose to 24.4pc in the cities, according to the data. There is a huge increase in food inflation, mostly because of disruption of supply chains and weak checks. Food inflation rose steeply to 45.2pc in rural areas and 39pc in cities last month. Wheat prices increased by over 78pc, while wheat flour prices also jumped by 61.3pc. Rice –another staple food – became expensive by 66pc last month. Pulses increased by over 50pc, vegetable ghee and cooking oil surged by around 43pc last month compared to a year ago.

Pakistan’s foreign exchange reserves held by the central bank decreased by 16.1pc to $3.09 billion in the week ending on Jan 27, the State Bank of Pakistan (SBP) said. The reserves are barely enough to meet the needs of three weeks of imports. The central bank said the drop in reserves (of $592m) was due to external debt repayments. Reserves held by commercial banks stood at $5.65bn, taking total liquid reserves in the country to $8.74bn, the State Bank of Pakistan added. The reserves are at their lowest since February 2014, and now only cover 18 days’ worth of imports.

The net Foreign Direct Investment (FDI) has decreased by 58.7pc during the current financial year (July-December) as compared to the corresponding period 2021-22. The net Foreign Direct Investment (FDI) decreased to $460.9 million from $1,114.8 million as compared to the corresponding period 2021-22.

Pakistan is currently confronted with challenges like high inflation, low growth and low levels of official foreign exchange reserves, the finance ministry said in its monthly report. Further, month-on-month increases in consumer prices may be countered by a further mean reverting international commodity prices and some exchange rate stability due to decreased pace of depreciation. In Pakistan, economic activity is following a lower growth path since the start of the current fiscal year. This is also reflected by the negative growth of several high frequency variables such as cement dispatches, oil sales, industrial production etc. Furthermore, slowdown in global growth, especially in main export markets, along with tight monetary policy stance by central banks (17pc policy rate in January 2023) and low export growth also affected economic growth in Pakistan negatively. The average monthly economic indicator (MEI) points to slightly positive growth during the first half of the current fiscal year. But, it deteriorated somewhat during the second quarter, the ministry noted.

The International Monetary Fund (IMF) forecast that Pakistan’s economy would grow by 2pc in FY2023, 1.5pc lower than what it projected in the October 2022 World Economic Outlook (WEO). The IMF also projected the country’s economic growth to 4.4pc in FY2024, 0.2pc higher than the October 2022 forecast. According to the newly released update to its World Economic Outlook report, global growth is projected to fall from an estimated 3.4pc in 2022 to 2.9pc in 2023, then rise to 3.1pc in 2024.

All national and international estimates point out harder times ahead. As the economy contracts and prices are set to increase further, it will add to job losses and poverty.