EDITORIAL: The October Finance Division publication titled Economic Update and Outlook uploaded on its website notes that “Pakistan’s economic recovery has demonstrated sustained recovery during the first quarter of FY2025.” Four key macroeconomic indicators showed an improvement.
First, remittances rose by 38.8 percent in July-September 2025 compared to the same period a year before. This rise can largely be sourced to the decision by the government to abandon the flawed policy of intervening in the foreign exchange market, yet it is relevant to note that remittance growth slowed down in September 2025 to 29 percent compared to September 2024 which may indicate that these inflows are nearing their maximum.
Second, the country registered a current account surplus which, reports indicate, is due less to a rise in exports and more due to delay in opening letters of credit though raw materials imports are being facilitated to fuel domestic output.
Exports rose by 8.5 percent though not by as much as imports, which rose by 19.4 percent indicative of critical raw material inflows that led to a reduction in negativity in large scale manufacturing sector (LSM) July-August this year to 0.19 percent compared to negative 2.53 percent in the same period of last year. What is concerning is that the August figure for the current year is negative 2.65 percent while it was positive 0.21 percent in August last year.
Third, an impressive 32.7 percent rise in Federal Board of Revenue collections in September compared to the same month last year and by 25.5 percent July-August this year compared to the these two months last year; however, the target was an unrealistic 40 percent higher agreed between the authorities and the International Monetary Fund (IMF), which raises concerns that the government may have to activate the contingency plans it agreed with the Fund in the event of a shortfall.
These envisage even higher reliance on indirect taxes (currently at around 75 to 80 percent) whose incidence on the poor relative to the rich is greater and which, many argue, is one reason behind a drop in consumption of electricity by 21 percent (with a consequent decline in tax collected from this item) and a significant rise in crime.
Be that as it may, there is a visible intent by the government to realise the budgeted revenue through ensuring that measures relating to widening the tax net are enforced – an intent that faces major setbacks, given that (i) in spite of a decline in the discount rate by 5.5 percent credit to private sector continues to flounder, registering negative 240.9 billion rupees July-11 October this year over and above negative 247.8 billion rupees in the same period of last year with the budgeted growth of 3.5 percent projected to contribute to high tax collections unlikely to be met; and (ii) resistance by the traders and industrialists on measures taken by the FBR have yet to be implemented.
And finally, inflation has come down significantly - to single digit - however, this decline has to be looked at in terms of other data including the 21 percent decline in electricity demand due to higher rates, a massive increase in petroleum levy collections (that surged by 19.6 percent as per the Update), which further eroded the purchasing power of each rupee earned and 41 percent poverty level that rivals that of Sub-Saharan Africa.
The Update does not release three major indicators. First, the country’s indebtedness though there is mention of the fact that mark-up expenditure declined by 6.3 percent owing to gradual decline in the policy rate which, in turn, reduced fiscal deficit to 0.7 percent of GDP against 0.8 percent last year.
Second, the appallingly-run energy sector continues to be subjected to flawed policies, a major source of circular debt estimated at 2.6 trillion rupees today, that include encouraging solar panels, which have reduced demand from the national grid, thereby upping the tariffs as capacity payments rise, and the focus on privatisation without bothering to learn lessons from the K-Electric experience, which more than 20 years after it was privatised still required a budgeted 171 billion rupees tariff equalization subsidy in the current year primarily because of the flawed policy of uniform tariff across the country.
And finally, total current expenditure though here again a partial picture was presented by revealing that total expenditures grew by 3.1 percent July-August 2025 – 16635.5 billion rupees July-August this year compared to 1585.7 billion rupees in the same period of last year.
There is, however still, a long way to go before the Herculean task of setting the economy on the right track can become evident.
Copyright Business Recorder, 2024
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