Gloomy Picture of Pakistan’s Economic Outlook

The cabinet members have raised concerns on rising inflation, decline in large scale manufacturing and low offtake of credit by private businesses

Aftab Ahmed
Islamabad:  The inflation is at highest level, large scale manufacturing growth registers negative growth, policy rates are higher to squeeze lending to private businesses. The prices of electricity, petrol and gas are higher to fuel inflation and hiking cost of doing businesses. However, government of PTI claims that economy had been stabilized and is now at a takeoff stage which augurs well with the government’s plan of economic revival.

The cabinet members have raised concerns on rising inflation, decline in large scale manufacturing and low offtake of credit by private businesses. It was explained that sine the previous government had not revised electricity tariffs for 18 months, the legacy liability resulted in sudden and substantive increase in electricity rates which in turn has fueled inflation. 

It is anticipated that the rising trend would smooth out in near future. However, the SPI inflation especially of locally produced food items was worrisome which is more due to supply shock rather than increase in electricity tariffs.
The cabinet was briefed that inflation could have many underlying reasons and many outlooks like imported inflation, administrated price inflation or inflation due to supply shock.

Exploitation by the middleman by increasing his margins in face of inflation uncertainty could be another factor. The provincial governments, therefore need to improve their oversight to check against hoarding and ensure abundant supply of locally produced food items.

Importance of agriculture sector was also highlighted and it was suggested that the next presentation on key economic indicators should include a report on the performance of agriculture sector as well.

Regarding the decline in credit to businesses it was elucidated that it is not the crowding out factor but the higher policy rate which had curbed the private businesses’ appetite for credit. With the stabilization of the macro-economic indicators, the policy rate will be revised downward in the coming months spurring credit offtake by the private businesses.

It was further informed to the cabinet that the lackluster performance of real sector was expected in face of the government’s contractionary policies to immediately address the current and fiscal accounts deficit. The members of the cabinet expressed satisfaction that macro-economic indicators manifest that economy had been stabilized and is now at a takeoff stage which augurs well with the government’s plan of economic revival.

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