Latest news with #MonetaryPolicyStatements
Business Recorder
4 days ago
- Business
- Business Recorder
Gallup poll: surge in business confidence
EDITORIAL: Prime Minister Shehbaz Sharif has expressed satisfaction at the Gallup poll survey's conclusion that business confidence is at a four-year high — a surge directly attributable to his administration's handling of the economy. This is no mean achievement especially considering that the incumbent economic team leaders, like their predecessors, have repeatedly noted that private sector is the engine of growth. The score was marginally negative in the second quarter of 2025 but marked the highest level of confidence since the fourth quarter of 2021 which the Survey noted, 'suggests a moderate easing of political and economic uncertainty from the perspective of the business community.' In this context, it is relevant to point out that perhaps the comparison is unfair given that in 2021 the country (as well as the global economy) was in the midst of a recurring Covid-19 onset with severe implications on economic activity. However, it is noteworthy that the Monetary Policy Statements for the past year projected an uptick in output with the 31 July 2025 Statement reiterating this claim: 'high-frequency economic indicators are depicting a gradual economic recovery. This is reflected in notable y/y growth in automobile sales, fertilizer offtake, credit to private sector, imports of intermediate goods and machinery, and purchasing manager's index in recent months. This improvement in high frequency indicators has now also started to reflect in LSM data, which showed y/y increase in both April and May after five months of contraction.' And yet the Finance Division's July Economic Update and Outlook, a monthly exercise, shows Large-Scale Manufacturing (LSM) July-May 2025 growth rate at negative 1.21 percent against 0.86 percent in the comparable period the year before — data that unambiguously challenges the claim of a four-year high. As noted in the MPS for end July the rise in sales in a number of products was, as per independent economists, rooted in higher sales and a consequent reduction in inventories rather than an uptick in output. Be that as it may, it is relevant to note the five major findings noted by the Gallup poll: (i) forward looking confidence of the business community has plateaued and long standing challenges including inflation, energy reliability and governance remain central to the country's business climate; (ii) 55 percent of businesses in the second quarter of 2024 (October to December 2024) found themselves worse off relative to the first quarter of 2024 (July-September 2024) — an observation that is baffling given that the survey was conducted 23 July to 27 July 2024 or well before the start of the second quarter of 2025 and does not include the May and April LSM data that the MPS stated as indicative of an upward trend; (iii) around one in five businesses (22 percent) reported having to pay a bribe in the past six months which is a decline of 4 percent in the first quarter of 2025. And concerning is the fact that more manufacturers reported having paid a bribe (25 percent) compared to service providers (20 percent); (iv) 43 percent of businesses surveyed claimed that their workforce had decreased in the second quarter of 2025, a 9 percent further reduction from the first quarter data — a concerning statistic for the government; and (v) around 85 percent did not consider last year's budget as a good budget while reports backed by anecdotal surveys indicate that the numbers who do not consider 2025 budget a good one has probably risen given that the incentives — monetary, fiscal and utility tariffs — have been withdrawn as per the conditions agreed with the International Monetary Fund which is generating considerable criticism within the business community. To conclude, granted that surveys have an experimenter bias and the questions simply support that bias yet the economy is clearly not out of the woods yet and the private sector continues to struggle with the IMF insisting on full-cost recovery of state utility companies, ending all incentives, including setting up economic zones, and implementing severely contractionary fiscal and monetary policies that are anti-growth. Copyright Business Recorder, 2025
Business Recorder
05-08-2025
- Business
- Business Recorder
Inflation rises: policy rate cut chances dim?
EDITORIAL: The July Consumer Price Index (CPI) rose to 4.1 percent against 3.2 percent in June, 3.5 percent in May with at the lowest level for decades, registering at 0.3 percent in April 2025. The calculation or average of 2024-25 is 11.09 percent projected to decline to 4.07 percent in the current fiscal year — which is not in synch with either the projection by the Monetary Policy Committee (MPC) nor that of the International Monetary Fund (IMF). The July CPI figure, the first month of fiscal year 2025-26, inches closer to the annual projection repeatedly made by the MPC since March 2025: that inflation would be within the target range of 5 to 7 percent though the Monetary Policy Statements since then cautioned that the outlook is 'susceptible to risks emanating mainly from volatility in food prices, timing, and magnitude of energy price adjustments, additional revenue measures, protectionist policies in major economies and uncertain outlook of global commodity prices.' In this context, it is relevant to note that in December 2024 the CPI was calculated at 4.1 percent and the discount rate announced on 16 December by the MPC was 13 percent — a rate reduced to 12 percent on 27 January 2025, and to 11 percent on 5 May 2025. In other words, given the CPI projected rise, the IMF is likely to be reluctant to approve a reduction in the discount rate in the scheduled meeting on 15 September and, in the event that the CPI further rises, it is unlikely that the discount rate would be reduced in the 27 October and 15 December scheduled MPC meetings. This would make the budgetary projections of a decline in the mark-up payment component of current expenditure, accounting for 50 percent, unlikely — a decline that the Federal Finance Minister noted in the finance committee meetings debating the budget as highly likely. The IMF in the first review documents uploaded on its website in May 2025 noted that consumer prices (period average) rose by 7.7 percent in 2024-25, lower than the 11.07 percent calculated by the PBS and is projected to rise by 6.5 percent in the current year (within the range specified by the MPC). The Fund notes that 'Fiscal Year 25 inflation is also revised down, although it is projected to increase notably in the coming months due to adverse base effects, with a durable return to the target range (5 to 7 percent) expected during FY26 provided policy remains appropriately tight' — a statement that supports the contention that the policy rate is unlikely to be further reduced in months to come. It is relevant to note that any decision that violates an agreement with the Fund would lead to suspension of not only the next tranche but also to the three friendly countries refusing to roll over around 16 billion dollars, which would raise the spectre of an imminent default. The PBS noted that sugar price rose by nearly 30 percent last month, the highest in the food group, and sadly this is squarely attributable to flawed policies of the federal government that, like its predecessors, failed to deal with the inaccurate stock data provided by the sugar millers (members of the politically powerful Pakistan Sugar Millers Association) with representation in the Sugar Advisory Board. The PSMA's objective is to be allowed to export the commodity, which during years when the international price is lower than the domestic price has led to export subsidies at the cost of the taxpayers. The increase in non-food prices, including gas charges (22.91 percent), electricity charges (14.18 percent), transport services (4.77 percent due to the rise in petroleum levy) and motor fuel (4.45 percent), was due to the administrative decisions taken by the government as part of the agreed conditions with the IMF. To conclude, as inflation rises, unemployment at a high of 22 percent and wages of the 93 percent of the country's entire labour force remaining constant for the past five to six years (only the 7 percent who receive a salary from the government at the taxpayers' expense have witnessed a pay raise above inflation), poverty levels have reached an alarming 44.2 percent as per the World Bank. There is a need for the government to acknowledge these disturbing statistics and take appropriate mitigating measures to forestall any civil unrest — a risk highlighted by the Fund time and again. Copyright Business Recorder, 2025
Business Recorder
15-07-2025
- Business
- Business Recorder
Policy mix to forestall boom-bust syndrome
EDITORIAL: The Governor State Bank of Pakistan while speaking at the launch ceremony of Women Entrepreneurs Finance Code stated that unlike in the previous boom-bust cycles the current policy mix is conducive to lasting rise in economic activity rather than a short-sighted, fragile and populist sugar rush. This observation is backed by an optimism displayed in the last four Monetary Policy Statements (MPS). It is significant that the 11 September 2024 International Monetary Fund (IMF) staff report for the 2024 Article IV consultations and request for an Extended Arrangement under the Extended Fund Facility noted that: 'Economic volatility has only increased over time, with a tight correlation between Pakistan's boom-bust economic outcomes and its macroeconomic policies. The repeated attempts to boost economic activity through fiscal and monetary stimulus have not translated into durable growth, as domestic demand increased beyond Pakistan's sustainable capacity, resulting in inflation and depletion of reserves, given a strong political preference for stable exchange rates. Each subsequent bust has further harmed Pakistan's policy making credibility and investment sentiment.' Tellingly, a detailed analysis by the Fund led to the conclusion that these cycles lead to recurrent balance of payment crises, and what the Governor would do well to note is that the discretionary monetary policy (an example being the demand for a low discount rate to jump-start private sector borrowing that in turn would raise industrial output and growth) induces boom-bust inflation cycles and significantly hinders economic growth. The 16 June 2025 statement issued by SBP maintains that 'the MPC anticipates the industry and services sectors to continue to drive economic growth in FY26. This assessment is supported by the sustained momentum in high-frequency indicators — including credit to private sector, imports of machinery and intermediate goods, and business sentiments — and easing financial conditions,' with higher imports a key component of the boom-bust cycle; and the 5 May 2025 statement making the same optimistic observation, 'incoming high-frequency indicators suggest that economic activity is maintaining momentum, as reflected by rising sales of passenger vehicles and petroleum products (excluding furnace oil), increasing electricity generation, and improving business and consumer confidence.' However, these sentiments are not backed yet by corroborating macroeconomic data particularly large-scale manufacturing sector's growth rate that registered negative 1.52 percent July-April 2025 against 0.26 percent in the comparable period of the year before. And while credit to private sector did double from the 323.5 billion rupees July-June 2024 to 676.6 billion rupees in comparable period of 2025 yet the Governor has not yet refuted claims by independent economists that the rise in private sector credit is linked not to the output sector but to the stocks and securities sector. The Governor further noted that the government and the apex bank remain steadfast in transitioning from recently hard-earned economic stability to a medium term economic transformation adding that this resolve is reflected in (i) prudent and cautious monetary policy though there is no consistency in the rationale provided while taking key discount rate decisions leading to the conclusion that the decisions are made by the IMF staff; (ii) fundamentals aligned exchange rate which has remained steady against the dollar even when the dollar plummeted against all major currencies after President Trump announced the imposition of tariffs; (iii) ongoing fiscal consolidation with sustained above 75 percent reliance on indirect taxes for revenue whose incidence on the poor is greater than on the rich; and (iv) improving debt dynamics which have certainly improved due to a reduction in the discount rate from 21 percent in June past year to 11 percent this year though total debt to GDP has risen to around 76 percent. It is concerning that structural reforms continue to focus on raising revenue primarily through raising tax rates rather than amending the inequitable, unfair and anomalous tax structure, reducing debt by lowering the discount rate (which requires IMF approval) and the 1.2 trillion-rupee circular debt retirement indicates lower interest costs due to the lower applicable discount rate rather than any other management or structural reforms. Debt rescheduling as a means to resolving sustained macroeconomic distortions and inefficiencies is unlikely to generate a lasting rise in economic activity and the focus must now shift to on well-defined structural reforms. Copyright Business Recorder, 2025
