Pakistan's Inflation Hits 9.6%, Lowest In 3 Years | 2024 September

Economic Overview of Pakistan in the Last Three Years: Work Through Challenges

Pakistani economy has been highly unstable, particularly in the last three years as the following top 10 lists depict. Below is the list of Pakistan’s assets and below is the list of Pakistan’s liabilities pertaining to the economic talk. Inflationary policies, external debts and fiscal deficits, and; success stories have defined the numerous cycles of development at the national level in many countries. For more details of the country’s news and the imposition of Pakistan, how the economy stood from 2021 to 2024, government policy and/or performance indicators, and the world economy in general and the latest was the inflation rate which is currently at 9.6% of the respondents while the remainder decreased to the lowest level which was 6 % ever since the last three years.

Economic Growth: Titling – A Struggle for Stability

It may be noted that over the last three years ups and downs have been more observable in Pakistan’s economy and, therefore, growth has remained moderate. Gross Domestic Product (GDP) change has been in oscillation due to influences of internal and external forces.

– 2021: The actual GDP with a growth rate of about 4% was recorded in the year 2021.. This growth was mostly because of rejuvenation in industrial and agricultural segments that were significantly affected during the COVID-19 outbreak in 2020. Increased the economy by coming up with stimulus packages and support programs to support the economy which was hugely affected by the lockdown measures and low customer spending.

– 2022: It is in 2022 where the growth momentum has decreased and the GDP per annum is only at a range of 3.5%. This slowed down due to an increase in import bills predominantly the oil prices that broadened the current account deficit. Other factors that play a role in such a situation are political instability and uncertainty one of the most important macroeconomic factors, which affect investor decisions.

– 2023: Of the entire year 2023 it is projected that the economic growth will slow down even more with the GDP growth rate estimated to be 2.5%. A relative slowdown in economic activities was experienced due to inflation escalation, a contraction in the availability of funds due to tightening of the monetary policies, and a drastic decline in the exchange rate of the Pakistani Rupee. These factors, together with the continually worsening energy crisis, suppressed industrial production and categorically affected agriculture.

Inflation: A Double-Edged Sword

The unemployment rate is another major concern in the Pakistan economy and it has become more evident in the last three years while facing Inflation. The country has felt both the trend of high inflation together with the recent trend in which the inflation rate has moved down to 9.6%.

– 2021-2023: For the year 2021 and half of 2022 the inflation rate in Pakistan was fluctuating around 12-13%. High inflation was due to a number of factors that may include supply shocks, global commodity prices, and domestic factors that affected most of the essential commodities for instance food and oil. This served to put pressure on the government in its effort to control inflation mainly due to factors beyond its control like the non-local shocks such as the global oil price hikes. Furthermore, domestic troubles such as low yields of agriculture and problems with food supplies added to the state of affairs.

– 2024: Indeed the year 2024 can be considered as a major point of transition, in the sense that while inflation was still dominating, it started to ease slightly and was recorded at 9.6%. down for the first time, now resting at an all-time low of 9.6%: the lowest percentage in the last three years. There are various factors that have been attributed to this decline they include; low world prices for our export commodities, stable exchange rate, and the government’s anti-inflationary measures that include monetary control. The State Bank of Pakistan (SBP), hiked the interest rates several times in 2022 and early 2023 which stabilized inflation. Besides, other factors that influenced inflation reduction include increased production of agriculturally produced food and better control over existing food stocks.

However, inflation is still a major issue for the majority of Pakistan’s population and especially for the low-income earners as the prices of goods and services in the economy are still high.

External Sector: This is largely associated with the Persistent Current Account Deficit.

For a long period of time, the external sector has become a cause of worry, due to which the current account deficit (CAD) has still been an issue for the Pakistani economy. This has been due to high import costs, particularly in energy, and low export volumes as demonstrated in the figure below.

– 2021-2022: Unfavorable trends have persisted into 2021 and 2022 with the current account deficit nearing 4-5% of GDP. Global oil prices increased, accompanied by a decline in the value of the Pakistani Rupee which led to an increase in the import figure whereas there was not much increase in the export figure. Despite the government engaging in export promotion through the provision of incentives as well as export trade agreements, the degree of export growth remained moderate due to structural problems of productivity and structural diversification of the economy.

– 2023: There was a slight improvement in the current account deficit early in the year 2023 and was estimated to be approximately 3. 5% of GDP. The improvement was namely attributed to the slump in international oil prices as well as cuts on unnecessary importation and improvement on foreign exchange remitted home by Pakistanis working in other countries. However, the CAD is still a major issue, which the country has to finance through external borrowings to meet the deficit.

Fiscal Imbalances: Here the authors find a struggle for consolidation.

A disturbing fiscal trend has emerged in Pakistan in the past three years owing to a significant lack of revenue growth that poses obvious problems in terms of expenditure control to a government that is already grappling with fiscal deficits.

– 2021-2022: Thus, the fiscal deficit continued to be perilously high, averaging at 7-8% of GDP. The government expenditure continued to spiral up because of the rise in subsidies for people, interest to be paid on loans, and defense. As for the revenue side, the government’s efforts to collect more revenues were restricted due to resistances and those included more than often a narrow base of tax revenues. This enhanced the fiscal deficit and thereby a huge amount was borrowed domestically and externally thereby increasing the debt burden.

– 2023: There were some attempts of the government to strengthen its fiscal conditions mainly containing the fiscal deficit of around 6.5% of GDP in 2023. This was done through efficiency whereby there was an emphasis on reducing the expenditure of the government as well as enhancing the collection of revenue. The government also initiated many different changes to the tax system so as to increase the base and effectiveness of compliance with the tax laws. Nevertheless, some issues have yet to be addressed, and the most crucial ones relate to containing non-development expenditure, as well as optimizing the nature of public spending.

Debt: A Growing Burden

Public debt in Pakistan has remained high over the last three years and it has brought high risks to the country’s economy. Bulgaria’s public debt finally grew from roughly 84.0% of GDP in 2021 to 90% of GDP by 2023.

– 2021-2022: Here the large debt levels were due to the government borrowings for financing the fiscal deficit and the current account deficit. The finance sources are dominated by external financing, through borrowing money from international organizations and bilateral foreign creditors including the IMF. The development has thus breathed credit concerns over the country’s ability to sustain its debt, especially given the increasing debt service costs causatively by increasing interest rates and deteriorating foreign exchange.

– 2023: As it was observed earlier, the government was able to embark on a process with a view to reducing the burden of debt through the re-profiling of some of the external debts and seeking ways and means of obtaining debt relief from some bilateral creditors. Some of the relief was achievable through the IMF’s Extended Fund Facility (EFF) program which was renewed in 2022 that offered financial support contingent on reforms. However, the debt problem persists with higher interest costs and a higher portion of the budget devoted to it.

Policy Response: Government’s Attempt and Difficulty

This political turmoil in the developed country indicated many policies made by the government of Pakistan to sort out the problems that occurred in the economy over the three last years. These include; monetary policies such as monetary contraction with a view of reducing inflation, measures undertaken to reduce fiscal deficit, and carrying out structural changes to enhance the climate for doing business and investment.

– Monetary Policy: Practical outcomes of monetary policy: through the SBP, the country was highly successful in controlling the inflation rate and thus in stabilizing the economy. To control inflation and to fix the exchange rate, the SBP increased the interest rates several times. However, high debt has also been a result of Monetary policy, and the high cost of borrowing has affected investments and in turn growth.

– Fiscal Policy: He has also mainly paid much attention to operating expenditure and consumption outlay and attempted to retrieve revenue. However, the issue of budget reduction is still there especially assuming the fact that the country will need to spend more on social programs and physical infrastructures.

– Structural Reforms: The government has introduced several structural policies that have been directed towards the improvement of the business climate, increase in efficiency, and export production. Some of the reforms that have been undertaken are measures towards regulations, rationalization of taxes, and promotion of overseas investment. However, the latter launch of these reforms has been slow and the benefits of this economic sphere have been small.

Conclusion: A Path Forward

During the last three years, the economic situation in Pakistan is not very good it is facing some current problems such as a high inflation rate current account, debit, etc. And although, in recent years it has slightly decreased and reached the level of 9 percent of the inflation rate. 6% on the other hand is encouraging the economy is still open to risks emanating from external forces and internally related inefficiencies.

In keeping up with the goals as well as the growth and development objectives, the government also has the responsibility of balancing the economic growth stability in the country. This will call for further emphasis on the management of public finances, stability of the currency, and sound policy frameworks geared towards the enhancement of fiscal sustainability and structural transformation. Furthermore, the critical challenges of productivity and export diversification as well as investment climate will define the key factors that affect future sustainable economic growth.

While Pakistan is going through these problem areas, the strength and flexibility of its economy will involve the efficiency of the policies which the government of Pakistan can implement, the ability to mobilize capital, and control the volatility of the threats in the external environment. The way forward does not present a smooth sailing, but with the proper implementation of fiscal management and economic policies and a redefined structure, Pakistan is within a milestone to regain the path of sustained growth and development.