Pakistan’s macroeconomic indicators show two notable positives: inflation is on the decline, and exports are improving.

The Consumer Price Index (CPI), which measures inflation including the impact of imported goods, dropped to 4.1% in December 2024, down 0.8% from November. Core inflation, which excludes volatile food and energy prices, stood at 8.1%. The Sensitive Price Index (SPI) averaged 9.36% from July to December 2024, a significant improvement compared to 31.58% during the same period in 2023. Similarly, the Wholesale Price Index (WPI) fell sharply to 4.38% from 25.37% last year.

Exports grew to $16.56 billion in the first half of FY2025, up from $14.99 billion during the same period last year. However, imports also rose slightly, from $26.14 billion to $27.73 billion, resulting in only a marginal improvement in the trade balance, which increased by just $20 million. Data from the Pakistan Bureau of Statistics (PBS) highlights regional disparities in inflation. Urban CPI matched the national average at 4.1%, while rural CPI was slightly lower at 3.6%. These figures suggest some relief in food inflation, particularly for rural households, which typically allocate a larger share of their income to food expenses.

However, despite falling inflation, the World Bank’s recent report indicates a troubling rise in poverty. The poverty rate climbed to 25.3% in 2024, up 7 percentage points from 2023, pushing an additional 13 million people into poverty. While it is unclear whether poverty is concentrated more in urban or rural areas, the increase is likely more pronounced in urban centers, given that agriculture saw growth last fiscal year, while industrial output recorded negative performance.

The significant drop in the WPI raises questions, given the ongoing struggles in Pakistan’s industrial sector. Negative industrial growth, the relocation of manufacturing units abroad, and complaints about rising business costs have made it difficult for local industries to compete with neighboring countries. This situation has also encouraged smuggling, further exacerbating challenges for legitimate businesses. The State Bank of Pakistan (SBP) has projected GDP growth between 2.5% and 3.5% for FY2025. However, it has warned of potential inflationary pressures resurfacing in the final quarter of FY2025 (April-June) and the first quarter of FY2026 (July-September).

While exports have risen by $1.58 billion and imports by $1.60 billion in the first half of FY2025 compared to the previous year, the slowdown in imports as a policy measure is expected to have adverse effects on economic growth. On the brighter side, the current account position remains stable due to increased remittance inflows. From July to November 2024, exports totaled $13.72 billion, slightly below the $14.77 billion received in remittances during the same period. December remittance figures are awaited, but the data underscores the importance of remittances as a critical source of foreign exchange earnings for the country.

In summary, while Pakistan’s economy shows signs of stabilization with lower inflation and rising exports, challenges in industrial performance, poverty, and the trade balance persist, requiring concerted policy efforts to ensure sustainable growth.

The 10% year-on-year growth in Pakistan’s textile exports during the first half of FY2024-25 brings a glimmer of hope to an economy often beset by challenges. Data from the All Pakistan Textile Mills Association (APTMA) reveals a promising rebound in the sector, with export earnings showing steady improvement after a 3% decline in July 2024. By December, monthly growth rates ranged from 6% to 18%, underscoring the sector’s resilience.

As a cornerstone of Pakistan’s economy, the textile industry plays a crucial role in bolstering foreign exchange reserves and providing employment across the value chain. However, the sustainability of this growth trajectory faces significant risks, particularly from the rising cost of energy. The International Monetary Fund (IMF) has consistently pushed Pakistan to eliminate energy subsidies as part of its $7 billion Extended Fund Facility (EFF). This has led to higher energy tariffs, particularly for gas—a critical input for textile production. The IMF has further demanded that gas supplies to captive power plants (CPPs) be disconnected by January 2025, a structural benchmark that Pakistan must meet to qualify for its next tranche of $1 billion in March.

These measures could have severe implications for the textile sector, which operates on thin margins and faces stiff competition from regional players like Bangladesh, Vietnam, and India. Rising energy costs threaten not only competitiveness but also production efficiency, potentially jeopardizing export volumes and delivery timelines. Efforts by Pakistan to negotiate flexibility on these conditions have been unsuccessful. Instead, the IMF has proposed imposing an additional levy of Rs 1,700-1,800 per mmBtu on top of prevailing LNG prices for CPPs in case of electricity supply challenges. This would significantly increase input costs, leaving the textile sector vulnerable to reduced profitability and competitiveness.

To navigate these challenges, the government must adopt a multi-faceted approach. Introducing special energy pricing for export-oriented industries, accelerating investments in renewable energy, and enhancing efficiency measures could offer some relief. However, these solutions require time and a proactive approach that has so far been lacking. Moreover, structural reforms are critical to address deeper issues in the power sector and state-owned enterprises. Without a fair and consistent tax structure and meaningful reform in energy pricing, the economy risks perpetuating a system that benefits the elite at the expense of the broader public.

While the growth in textile exports is encouraging, it comes amidst significant challenges that threaten its sustainability. Rising energy costs, driven by IMF conditions, could undermine the sector’s competitiveness and erode the gains made in recent months. To secure long-term stability, Pakistan must strike a balance between meeting IMF benchmarks and safeguarding its key industries. The consequences of inaction are clear: reduced exports, shrinking revenues, and a worsening socio-economic outlook. There is no room for complacency; decisive reforms and strategic policymaking are needed to support both the textile sector and the broader economy.