While the stock exchange is booming, paradoxically the economy remains in a moribund state. Neither industrial production is rising nor are exports showing any dynamism. The continuous rise in electricity and gas prices and high-interest rates are taking their toll on industrial production.

The latest figures show that large-scale manufacturing grew just 0.93pc in the first quarter of this fiscal year (July-September 2023). On the other hand, the Pakistan Bureau of Statistics reported LSM growth of 0.68pc for the July-September period. All industries are struggling in the face of surging inflation and high interest rates. According to media reports, a large number of production units in Karachi, including those belonging to export-oriented industries, suspended operations for one day in protest against gas tariff hikes. This resulted in the loss of millions of rupees in production and taxes.

Alarmingly, textile production, the sheet anchor of our exports, fell by 20pc. On the other hand, automobiles production, the driving force behind banks’ consumer financing, nosedived by 46pc. On the external front, in July-November 2023, export earnings of $12.172bn were just 1.93pc higher than those of July-Nov 2022.

In the days ahead, there is very little likelihood of economic prospects improving. This is because a majority of industrial units cannot expand production unless they get cheaper gas and electricity and cheaper bank financing. Exports too cannot grow in the present restrictive environment. Over the years, short-sighted policies have sapped the inner strength and capacity of industries to thrive on their own because of artificial crutches of subsidies and special concessions provided by the government. Very few of them used their resources to invest in productivity and efficiency enhancement.

In the last one year, unprecedented energy price hikes and monetary tightening have further added to their woes. It is relevant to add here that during this period for most industrial users of gas and electricity, effective energy prices went up 100pc and more. The State Bank of Pakistan also raised its benchmark interest rate by 700 basis points from 15pc effective before November 28 2022, to 22pc as of now.

Inflation is also hobbling the working of the economy. Frequent rises in the prices of imported fuel oil, creeping rupee depreciation and periodic disruption in food supplies have accentuated inflationary pressures which act as a damper on consumer demand and affect production.

According to the PBS, in November, annual national consumer inflation in Pakistan increased to 29.2 per cent from 26.8pc in October, mainly due to increased gas and electricity prices. Average yearly inflation during the first five months of this fiscal year (July-Nov 2023) stood at 28.6pc. In the prevailing circumstances, there is little chance of inflation softening as energy prices are likely to rise further under the pressure of the International Monetary Fund.

On top of all this, endless government borrowing continues to add to the mountain of debt under which the economy is groaning. According to the SBP, during the first three months of this fiscal year, the federal government borrowed more than Rs3.244 trillion from commercial banks. In the comparable period of the last fiscal year, the government’s borrowings from banks totalled only Rs827 billion. Experts have noted that the massive increase in government borrowings from banks has occurred despite the fact that tax revenue generation in July-October exceeded the target of Rs2.68tr. In the last fiscal year ending in June, the federal government’s borrowings from banks stood at Rs3.72tr, up from Rs3.45tr a year earlier.

The borrowings are resorted to meet the swelling cost of domestic and external debt servicing and increased expenditure on pay and pensions of the government employees. Enhanced debt servicing requirements have also forced the government to borrow even more foreign funds. Policymakers have also been seeking rollovers of debts acquired earlier from friendly countries. Recently, Saudi Arabia rolled over a $3 billion debt for one more year to help Pakistan add to its foreign exchange reserves.

Massive energy and tax reforms are urgently needed for Pakistan to get out of the economic logjam it is currently facing. A prime need is to reduce the size of the energy sector’s circular debt, as well as to increase tax collection and offer more incentives to attract foreign investment. The government is at present exploring various options to tax the untaxed sectors and apply new taxes on every kind of business and money transaction in the country. It is also time to bring agriculture into the tax net as well as those industries which enjoy special concessions on spacious grounds. Substantial savings can also be made by curtailing the royal perks and privileges of higher bureaucracy which have no parallel anywhere in the world.