Positive signs are emerging that Pakistan is gradually moving towards macroeconomic stability. All indicators point upwards it. International rating agencies have upgraded Pakistan in their latest reports. Inflation is declining and manufacturing and exports are in the positive zone.

The Ministry of Finance in its August outlook last week said that inflation was expected to remain in the range of 9.5-10.5pc and further decline to 9-10pc in September “on account of stability in economic indicators”. After Fitch, the global rating agency, Moody’s recently upgraded Pakistan’s credit rating, which is an acknowledgment of the country’s positive economic indicators. The international financial institutions have upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa2 from Caa3, saying their decision to upgrade was due to “Pakistan’s improving macroeconomic conditions and moderately better government liquidity and external positions, from very weak levels”.

There is also good news on the price front. Pakistan’s consumer price index (CPI) in August rose 9.6 per cent year-on-year (YoY), marking a 34 month-low. The CPI measures household inflation and includes statistics about price change for various categories of household expenditure. According to the Pakistan Bureau of Statistics, CPI general inflation increased to 9.6pc on a year-on-year basis in August 2024 as compared to an increase of 11.1pc in the previous month and 27.4pc in August 2023. The data showed that urban inflation increased by 11.7pc while rural inflation increased by 6.7pc in August.

Experts say the decrease in inflation was a reflection of the government’s effective measures to improve the economy. In July, inflation had risen to 11.1pc on a YoY basis as compared to an increase of 12.6pc in the month of June and 28.3pc in July 2023. In May, it had hit 11.8pc — a 30-month low.

On the other hand, the State Bank of Pakistan has released figures showing a rise in exports and large-scale manufacturing (LSM) sector. The total provisional exports were estimated at 5.069 billion dollars in July-August 2024, against 4.430 billion dollars in the same period of last year (a rise of 14.42 percent this year compared to the year before), though imports rose to 8.750 billion dollars this year compared to 8.165 billion dollars in the same period of last year.

Rice exports rose massively in August 2024 in quantity – 28.5 percent higher than in July 2024 and 106 percent higher than August 2023; however, this is unlikely to be sustained as India has now altered its strategy in relation to export of rice, initially banned in July last year. Textile exports have also shown an increase. Quantity increased in knitwear, bedwear and towels but not in cotton yarn.

On the other hand, petroleum products declined in quantity – from 994,210 metric tonnes (mt) in August 2023 to 825,661 mt in July 2024 to only 609,382 mt in August 2024. This means that  the general public continues to reduce its fuel intake  due to eroding income of the salaried class as a consequence of higher taxes. LSM registered negative 2.08 percent in July 2024 compared to June 2024 while its growth is cited at 2.38 percent year-on-year. This implies that the uptick in manufacturing that was projected in the Monetary Policy Statement of September 12, 2024, has not materialised. It may be added here that the scheduled IMF Board meeting date to consider the 7 billion dollars Extended Fund Facility (EFF) on which a staff-level agreement was reached more than two months ago on 12 July this year has worked as a positive element in the situation.

So far so good but still many challenges remain to be tackled. These include persistent inflation and rising poverty levels caused by a combination of higher taxes and shrinking job opportunities. These factors have negatively impacted the household budget of all income groups, especially the low wage earners. To transfer the benefits of macroeconomic improvement to the bulk of the population it is important to initiate measures to reduce the rising income gap in society. The first step in this direction is for the ruling  elite who are  the major recipients of current budgeted expenditure to reduce their budgeted outlays.

Our government departments are known for their corruption, inefficiency and wasteful spending habits. If these evils are curbed, there will be massive savings which can be diverted for the welfare of the people. In a poor country like Pakistan there is no place for expensive limousines and unlimited free petrol allowed to higher bureaucracy. The lavish style of governance must give way to austerity which is the hallmark of most governments in the West as well as in our neighboring country India. The long overdue structural reforms should be immediately implemented to give relief to the common man who is groaning under the back breaking burden of raging inflation and unaffordable electricity charges.