Pakistan’s inflation growth rate is clocking below 3% in current months; the dollar is stable; foreign reserves are up, exports are up while remittances and the stock market are at record levels.
Apparently, the government has done well in the last one year. So why is there pessimism? Why are businesses crying? Can it all just be political and social media, or is there a depth to this pessimism which still clouds the mind of a regular businessman?
Apparently, the government has done well in the last one year. So why is there pessimism? Why are businesses crying? Can it all just be political and social media, or is there a depth to this pessimism which still clouds the mind of a regular businessman?
Now, let’s examine the flip side which may give us an indication of what the short-term future holds for the economy and businesses.
Now, let’s examine the flip side which may give us an indication of what the short-term future holds for the economy and businesses.
Our population growth is growing by more than 2 percent a year, one of the highest rates in the world. Our GDP growth rate is hovering around less than 3%. In real terms, it’s a negative growth, meaning we have less job opportunities created than the increase in population every year, leading to social issues such as unemployment, lawlessness, and terrorism
Inflation has been controlled, but we have paid a high cost for it. Last year, our interest cost went as high as 22 percent, while today it’s 12 percent percent. Inflation is down at the cost of growth.
The inflation number is just monitoring the pace of increase in prices relative to last year. This means the low inflation rate which we are seeing is going to wade out soon as base year effect fades out in coming months.
The dollar has been stable in recent months, though the REER (real effective exchange rate) is beyond 104, which means that the cost of doing business in Pakistan is not reflected in its exchange rate. If a country wants to be aggressive in exports the REER needs to be below the parity rate (100), not higher. This high REER will gradually deplete our export market share in the international market.
Pakistan exports on paper seem to be growing. Rice exports did extremely well last year. However, this was largely due to India’s ban on exporting rice, as opposed to our own doing. This will not be the case this year. Textile exports continue to be the mainstay of our exports.
Though the numbers are indicating a healthy growth, an analysis of net exports is what is most important. The unprecedented increase in energy prices, especially gas prices, has broken the supply chain of textiles.
The spinning and weaving sector, which consumes energy more than other processes, is closing down on a daily basis. Value-added sectors cannot rely on expensive raw materials such as the yarn and fabric of Pakistan, and is now shifting to import these. This will majorly affect our net exports, balance of payments, and the rupee/dollar exchange rate.
Pakistan is at a crossroads now and must decide whether it wants to be an export-driven country or not. In this new world order, with tariff being the new buzzword, Pakistan is offered a once-in-a-lifetime opportunity to grow its exports. The only requirement is to be competitive at the world stage.
At our electricity rate of approximately Rs 50 per unit and captive power at Rs 3500+ per mmbtu, exports will definitely not grow, but may decrease instead.
Pakistan, with its growing population, cannot sustain a 3% growth. It also cannot achieve a 5 percent growth unless it is export-driven. For this, we need a concrete, stable, and competitive export policy on which a business can plan for at least five years.
The country needs those in Islamabad to make a decision and make it now; otherwise the brain, capital and labour drain will make it impossible for Pakistan’s GDP to grow, putting our economy in a spiral.
Copyright Business Recorder, 2025
Fawad Anwar
The writer is Chairman, Pakistan Textile Council