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PAKONOMICS (SPECIAL EDITION) 2023-24

PREAMBLE:
Asalam-o-alaikum everyone!

Hope this publication finds you in good health. The Pakistani economy is trying to make a modest recovery
after a very precarious situation in the previous Fiscal Year. Moreover, the outgoing Fiscal Year 2023-24 has
witnessed decent economic conditions. To decipher and analyze the major fundamentals of our economy for
this Fiscal Year, we hereby offer our analysis through this document titled "Pakonomics (Special Edition)
Economic Survey 2023-24" on the major economic developments that took place during the outgoing Fiscal
Year.
Further, this publication analyzes trends in agricultural and industrial production, money supply, inflation,
foreign exchange reserves, balance of payments, debt profile, savings, investment, and other relevant
macroeconomic factors that have a bearing on the budget. This document also provides a glimpse of what to
expect in the coming Fiscal Year.
We hope this publication will assist our readers in understanding better, the macroeconomic indicators that
influence the Pakistani economy.
Towards the end, we would like to reiterate that tough times never last, and that our prayers are with Pakistan
for a full recovery from the current economic turmoil it is in.
Kind Regards,
Ashfaq Tola – FCA
Chairman
Tola Associates
[email protected]

You can also contact the following contributors to this publication:

M. Amayed Ashfaq Tola

President
Tola Associates
[email protected]

Sardar M. Ahsan Ahmed

Macroeconomic Analyst
Tola Associates
[email protected]

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Contents
PREAMBLE: ............................................................................................................ 2
THE ECONOMY OF PAKISTAN- A BIRD’S-EYE VIEW: .......................................... 4
OVERVIEW OF THE ECONOMY: ............................................................................ 5
I. GDP – GEOGRAPHICAL COMPARISON: ........................................................... 7
II. PAKISTAN’S GDP GROWTH AND CONTRIBUTION: ........................................ 8
A. AGRICULTURE SECTOR: ................................................................................ 9
B. INDUSTRIAL SECTOR: .................................................................................. 11
C. SERVICE SECTOR: ........................................................................................ 13
III. PAKISTAN’S ECONOMIC GROWTH PROJECTIONS FOR 2024-25: ............... 13
IV. RE-PROFILING OF THE ECONOMY: A CASE OF IMF VS HOME GROWN
(“HG”). .................................................................................................................. 15
V. CURRENT ACCOUNT DEFICIT: .................................................................... 17
VI. WORKER’S REMITTANCES: ......................................................................... 19
VII. FOREIGN EXCHANGE RESERVES: .............................................................. 20
VIII. CREDIT TO NON-GOVERNMENT SECTOR: ............................................... 20
IX. NET GOVERNMENT SECTOR BORROWING: ............................................... 21
X. FISCAL OPERATIONS: ................................................................................... 21
XI. PAKISTAN’S DEBT PROFILE: ........................................................................ 22
XII. SAVINGS AND INVESTMENT GAP: ............................................................... 22
XIII. MONETARY DEVELOPMENTS: ................................................................... 23
XIV. INFLATION: .................................................................................................. 24
ANNEXURE I ......................................................................................................... 25

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THE ECONOMY OF PAKISTAN- A BIRD’S-EYE VIEW:

Economic Indicators Period Status Current Year Last Year
Real GDP Growth Jul-June 2.38% (0.20) %

Agriculture Sector Jul-June 6.30% 2.30%

Industrial Sector Jul-June 1.20% (3.70)%

Services Sector Jul-June 1.20% (0.01)%

Inflation (General CPI) Jul-May 24.50% 29.20%

Current Account Deficit Jul-April USD (202) Million USD (3,920) Million

Imports of Goods Jul-May USD 49.80 Billion USD 51.01 Billion

Exports of Goods Jul-May USD 28.07 Billion USD 25.37 Billion

Worker’s Remittances Jul-May US $ 27,093 Million US $25,145 Million

Domestic Debt Up to March PKR 43.43 Trillion PKR 35.08 Trillion

Central Government Debt Up to March PKR 65.37 Trillion PKR 57.12 Trillion

External Debt Up to March PKR 21.94 Trillion PKR 22.05 Trillion

FBR Tax Collection Jul-May PKR 8,122 Billion PKR 6,208 Billion

Foreign Exchange Reserves As of 24th May USD 9.09 Billion USD 4.09 Billion

Exchange Rate (PKR/USD) As of 3rd June PKR 278.37 PKR 286.2

Investments (% of GDP) Jul-June 13.10% 14.10%

National Saving (% of GDP) Jul-June 13.00% 13.20%

Currency in Circulation Jul-19th May PKR (212) Billion PKR 1,230 Billion

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OVERVIEW OF THE ECONOMY:

The Annual Plan Coordination Committee (“APCC”), has elucidated the provisional estimates of
the GDP growth rate in Fiscal Year 2023-24 (“FY24”), that stands at 2.38% compared to the
revised estimates of a 0.2% contraction in FY23.

The FY24 began under the influence of unprecedented economic disruptions on the back of a 0.2%
economic contraction in FY23. This downturn was primarily due to catastrophic floods, rising
global commodity prices, monetary tightening, political uncertainty, and baggage of past economic
decisions.
The real GDP growth in FY24 was primarily driven by the agriculture sector; with wheat, cotton,
and rice production reaching record levels. The growth of the industrial and services sectors was
constrained by limited import demand, high input and energy costs, elevated borrowing costs, and
weak domestic demand.

Despite the detrimental effects of severe floods in the last FY23, the agriculture sector in Pakistan
experienced an overall robust growth of 6.3% during the FY24. The Agriculture sector was
projected to grow by 3.5% based on the assumptions of adequate water availability, certified seeds,
fertilizers, pesticides, affordable agricultural credit facilities, and increased livestock productivity.

However, the industrial sector faced challenges during FY24; leading to a low growth of 1.2% in
FY24. Various factors such as reduced demand, supply chain disruptions, high policy rate and the
overall economic slowdown have contributed to this decline.

The Large-scale manufacturing sector (“LSM”), which constitutes nearly half of the industry,
recorded a minimal growth rate of 0.1%. Positive cumulative growth during July-March 2023-24
was observed in sectors such as wearing apparel, pharmaceuticals, chemicals, and furniture, while
negative growth contributions came from textiles, automobiles, and tobacco.

The commodity-producing sectors grew by 4% during FY24; however, this growth did not fully
translate into the dependent services sector, which posted a lower growth rate of 1.2%. The
wholesale and retail trade sub-sector, grew marginally by 0.3%.

The GDP growth rate for FY24 is much lower than the official target of 3.5% projected by the
APCC in their annual report last year. However, the GDP growth had been revised down to 2.0%
by the World Bank in their report on May 2024 titled “IMF - Pakistan SBA Country Report”.

Various macroeconomic indicators were indicating a recovery in the economic activity. As can be
seen, both the trade deficit and the current account deficit decreased on a Year-on-Year (“Y-o-Y”)
basis, reaching lower levels in FY24.

The Consumer Price Index (“CPI”) has witnessed a mixed trend. In September 2023, the inflation
rate stood at 31.4%, whereas by May 2024, the inflation rate decreased to 11.8% on a Y-o-Y basis.

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The magnitude of this decline is attributed to the elevated inflation levels in the previous year and
improvements in the domestic supply chain of perishable items.

A Beacon of Hope: Government's Remarkable Achievement in FY24. The Government has

been successful in curtailing the Current Account Deficit (“CAD”), which is down to USD 202
million during the Jul-April period of FY24.

One of the key reasons for a decline in the CAD is a reduction in total imports of Goods, which
decreased by 2.37% from USD 51.01 billion in FY23 to USD 49.80 billion in the Jul-May period
of FY24. As a result, the Trade deficit has contracted by 15.3% during the Jul-May period of FY24.

Further, it is imperative to note that the export-to-import ratio has improved significantly in FY24.
Comparing the export-to-import ratio, it is observed that the same stands at 56% in FY24, a notable
increase from the 50% recorded in the FY23.

For FY24, the Federal Government set a budget deficit target of PKR 7,505 billion, or 7.09% of
GDP. By Jul-March period of FY24, the deficit had already reached 58% of the annual target at
PKR 4,338 billion. Given historical trends of increased spending in the last quarter, the deficit may
exceed PKR 7.5 trillion, reaching 7% to 7.25% of GDP.

Further, in FY24, the interest rate remained at 22.0%, for the majority of the FY24 despite a
reduction in inflation; however, the interest rate was reduced only yesterday on 10th June 2024, by
150 bps to 20.5%. This high interest rate severely inflated the cost of doing business and interest
repayments on debt. When compared regionally, Bangladesh has an interest rate of 8.5%; India
has an interest rate of 6.5%; and the interest rate in China is 3.45%.

This has significantly impacted the finance cost as a percentage of the selling price for a textile
unit that operates its working capital three times; resulting in the finance cost as a percentage of
the selling price recording at 7.3% for Pakistan; 2.7% for Bangladesh; 1.25% for China; and 1.25%
for India.
When assessing electricity costs as a fraction of the cost of goods sold (“COGS”), Pakistan incurs
a 7% cost, while India, Bangladesh, and China bear a 3.5%, 4.25%, and 3.75% cost, respectively.
When analyzing the combined influence of interest rates and electricity costs on operational
expenses, Pakistan emerges as 8% more expensive than the most cost-effective country within the
group.

This disparity in input costs raises concerns regarding the competitiveness and profitability of
Pakistan's textile sector. Despite a sector profit margin typically ranging between 3-5%, the
elevated input costs may present obstacles for businesses to maintain viability and competitiveness
on a global scale.

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The currency parity has experienced a resilience, after reaching a record low level of 304.85/USD
in the end of August 2023, to a relatively sustainable rate at 278.37/USD as of 10 th June 2024.
Despite the PKR recently showing signs of recovery and stability; stabilizing around 278/USD in
the past few weeks, the same is still well above the market determined rates.
In our humble view backed by a proper valuation, the PKR currency rate is valued in the range of
234/USD in FY24. Additionally, Goldman Sachs and Optimus have valued the rupee parity at
224/USD and 243/USD during the FY24, respectively. Further, aligning the currency parity with
its true value could reduce the inflation rate by 9%.

Ensuring a stable, market-determined exchange rate is crucial for Pakistan. The Government must
evaluate if the economy can handle a suboptimal exchange rate and restrictive monetary policy,
given the stagnant per capita income of USD 1500-1700. With better currency management, the
per capita income could have reached USD 1,900 in FY24.
Striking a Balance: Inflation, Inclusive Growth, and Revenue Targets: One of the critical
challenges for the current regime lies in effectively managing inflationary pressures while ensuring
inclusive growth and economic stability.

The size of the Economy of Pakistan in USD terms has increased to USD 375 billion in FY24 from
USD 338 billion in FY23, increasing by almost USD 37 billion or 11.0%. Similarly, the per capita
income that was USD 1,551 in the FY23, surged to USD 1,680 in FY24, reflecting a increase of
USD 129 or 8.3% when compared to FY23. Moreover, Pakistan still has the lowest Per capita
GDP, and is lagging behind those countries who have the highest inflation rate. (Annexure I).

I. GDP – GEOGRAPHICAL COMPARISON:

The GDP growth of Pakistan has consistently trailed behind that of regional economies, placing it
marginally ahead of Sri Lanka's economy, which is also recovering from a significant political and
economic crisis. In contrast, countries such as Bangladesh, India, and China have exhibited robust
GDP growth rates of 7.5%, 8%, and 4.6% in 2024. The disparity in GDP growth between Pakistan
and its regional counterparts highlights the need for Pakistan to address the underlying factors
hindering its economic progress.

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The graph hereinbelow shows the GDP growth trend for the regional countries:

Major Regional Countries GDP Growth

(%)

China
Sri Lanka
10.00
8.00 Bangladesh
6.00
4.00 India
2.00 Pakistan
-
(2.00)
(4.00)
(6.00)
(8.00)
2024 2023 2022 2021 2020
Pakistan 2.38 (0.20) 6.18 5.77 (0.94)
India 8.20 7.00 8.50 (7.00) 3.90
Bangladesh 7.50 6.03 7.10 6.94 3.45
Sri Lanka 2.20 (2.30) (7.30) 4.20 (1.66)
China 4.60 5.20 3.00 8.40 2.20

II. PAKISTAN’S GDP GROWTH AND CONTRIBUTION:

The real growth of 2.38% in FY24 was
Real GDP Growth
primarily driven by the agriculture sector,
(Base Year 2015-16)
with wheat, cotton, and rice production
8.00
reaching record levels.
6.00
This agricultural recovery supported agro- 4.00
based industries, which maintained 2.00
moderate growth in the manufacturing -
sector. (2.00)
On the other hand, the industrial sector (4.00)
faced challenges during FY24, leading to a (6.00)
2021-22 2022-23 2023-24 2024-25
low growth of 1.2% in FY24. F R P E*
Agriculture 4.20 2.30 6.30 2.00
Various factors such as reduced demand,
Industrial 7.00 (3.70) 1.20 4.40
supply chain disruptions, high policy rate Services 6.70 (0.01) 1.20 4.10
and the overall economic slowdown have Overall GDP 6.20 (0.20) 2.40 3.60
contributed to this decline.

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The industrial sector's performance reflects

Pakistan's Real GDP Growth
the broader economic challenges faced by
Contribution (%)
Pakistan during this period. Similar to the
industrial sector, the services sector, which
100
represents the largest segment of the
58.29 58.41 57.74
economy, also managed to achieve a slim
50
growth of 1.2%. This growth rate may 19.11 18.43 18.22
22.6 23.16 24.04
appear modest, and it is not an encouraging
0
sign given the prevailing circumstances of 2021-22 F 2022-23 R 2023-24 P
the backward commodity producing
Agriculture Sector Industrial Sector
sectors.
Services Sector
The share of main sectors in the GDP are
also illustrated in the table infra:

A. AGRICULTURE SECTOR:
“Performance of Agriculture Sector: Mixed Growth in Key Crops and Sub-Sectors”

As of now, the agriculture sector accounts for 22-23% of the GDP in real terms. This sector
comprises of four sub-sectors which include crops, livestock, forestry, and the fisheries sector.

Major Crops Production

(Tons/Bales per Hectare)

80.00

60.00

40.00

20.00

-
Cotton Rice Sugarcane Wheat Maize
2022-23 2.29 2.46 66.70 3.12 6.39
2023-24 4.22 2.71 74.27 3.26 6.00

In FY24, the Agriculture sector secured a huge growth of 6.30% despite being severely affected
due to the floods in FY23. Furthermore, the agriculture sector’s contribution to the GDP also
increased to 24.04% in FY24 from last year’s 23.16%.
The graph hereinabove presents the yield per hectare for various cash crops in Pakistan, including
the provisional estimates for the FY24 and the revised estimates for FY23.

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Crop Production Comparison

(2023-24)
900 10
800
700 8
600 6
500
400 4
300
200 2
100
0 0
World India Pakistan Egypt
Cotton (Kg per Hectare) 785 446 717 693
Wheat (Metric tons per hectare) 3.54 3.52 3.26 6.57
Corn (Metric tons per hectare) 6.04 3.41 6 7.84
Rice (Metric tons per hectare) 4.65 4.19 2.71 8.7

The graph supra illustrates that Pakistan lags behind the world average in several key agricultural
sectors. For wheat, Pakistan's yield is 3.26 MT per hectare, which is below the world average of
3.54 MT per hectare and slightly lower than India's yield of 3.52 MT per hectare. If Pakistan meets
the world's average wheat yield, it could easily produce an additional 2.70 million metric tons
(“MMT”) of wheat. Pakistan imported a total of 3.54 MMT of wheat at a cost of USD 1.03 billion
during the Jul-April period. Meeting the average yield could save Pakistan the wheat import bill,
potentially leading to a surplus of wheat export.

Total Net
Wheat Productio Current Total Per Capita
Production Total Consumptio surplus
Yield n Area Production Production Consumption
(000 MT) population n Demand for
(Diff) (000 MT) (000 MT) (000 MT) (Kg)
(000 MT) Exports
(000 MT)
A B C= A*B D E= C + D F G H = F*G I=H-D
0.28* 9,632 2,697 31,438 34,135 124 249** 30,876 3,256***
*Pakistan’s Yield minus World Average Yield (3.54 - 3.26)
**Total Population of Pakistan in Million
***Net surplus production for exports could be 3.26 MMT, which accounts at $946 million

The table hereinbelow illustrates the potential export surplus for FY25, which accounts for around
USD 1.1 billion.
Consumption Exportable
Production Production World Production Populatio Export
Demand Amount
Area FY24 Area FY25 Avg Yield (000 MT) n in FY25 Surplus
FY25 $ in Million
A B C D =B*C E F = E*1.24 (Kg) G=D-F H = 290.59*G
9,847 10,103* 3.52 35,563 256** 31,708 3,855 1.120***
*Accumulate 2.8% of growth in production area
**Assumption of Population Growth by 2.8%
***$290.59 average wheat price per MT

Pakistan's yield for rice stands at 2.71 MTs per hectare, markedly below the world average of 4.65
MTs per hectare and India's yield of 4.19 MT per hectare. If Pakistan is able to meet a yield of 3

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MT per hectare, then Pakistan’s rice production may approximately enhance by 1,114 thousand
MT, and ultimately Pakistan’s export may also increase by USD 668 million in FY25.
Rice
Pakistan's Assumption Deficiency Production Area FY25 Production Rice Export
Yield in Yield (MT 000) (000 MT) Price/MT ($ in Million)

A B C=B-A D E = C*D F G = E*F

2.71 3.0 0.29 3,855* 1,114 $600 668
*Projected at an average growth of previous 5 years growth.

Overall, Pakistan's agricultural productivity has room for improvement, particularly in wheat and
rice, to meet global standards.
The following table describes the flow of the agriculture sector and the shares of the sub-sectors
of the agriculture sector in the GDP:

Provisional Share in GDP (%)

Sub Sectors
Growth/(Contraction) 2023-24 (%) for FY 24
1. Crops (i+ii+iii) 11.03 8.54
i. Important Crops 16.80 4.97
ii. Other Crops 0.90 3.25
iii. Cotton Ginning 47.20 0.32
2. Livestock 3.90 14.63
3. Forestry 3.00 0.56
4. Fishing 0.80 0.31
Overall Growth 6.30 24.04
(Source: PBS)

B. INDUSTRIAL SECTOR:
Industrial Sector: A declining share and challenging growth
The industrial sector's contribution to the GDP has contracted to 18.22% in FY24, down from
18.43% in FY23, due to persisting high interest rates, rising energy and raw material costs, and
subdued domestic demand. This decline is concerning as the industrial sector plays a pivotal role
in economic development, job creation, and maintaining the country's economic surplus. As such,
the industrial sector achieved a modest growth of only 1.2% in 2023-24.
Despite an underwhelming performance by the industrial sector overall, the mining and quarrying
subsector defied expectations, achieving a robust growth of 4.8%. This surge significantly
exceeded its target of 1.2% and can be attributed to several factors such as coal production, crude
oil extraction, and mineral output expansion.

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Furthermore, the LSM, guided by the Quantum Index of LSM (“QIM”), registered an even lower
expansion of 0.1% after adjusting for seasonal variations. This contraction can be attributed to
declines in various sub-sectors such as, inter-alia: (a) Beverage (- 3.43%); (b) Tobacco (-33.59%);
(c) Textile (-8.27%); (d) Non Metallic Mineral Products (-3.89%); (e) Iron & Steel Products (-
2.20%); (f) Automobiles (-37.41%); (g) Electrical Equipment (-7.47%); (h) Fabricated Metal (-
5.42%); (i) Paper & Board (-1.96%); (j) Other transport Equipment (-10.0%).

On a more positive note, the sugar industry, garments, petroleum products and fertilizers industry
have shown a growth of 1.74%, 5.41%, 4.85% and 16.40%, respectively. However, the Cement,
Cotton Yarn, and Cotton Cloth industry have registered a negative growth rate of 4.14%, 12.19%,
and 7.27%.
Additionally, the table below shows the Provisional Growth of the Industrial sector in FY24 and
the share of the sub-sectors of the Industrial sector, in the GDP

Provisional
Growth/(Contraction) Share in GDP
Sub Sectors
2023-24 (%) (%)
1. Mining and Quarrying 4.80 1.66
2. Manufacturing (i + ii + iii) 2.40 11.89
i. Large Scale 0.10 8.24
ii. Small Scale 9.10 2.30
iii. Slaughtering 6.60 1.34
3. Electricity Generation & Distribution & Gas (10.50) 2.30
4. Construction 5.90 2.37
Overall Growth/(Contraction) 1.20 18.22
(Source: PBS)

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C. SERVICE SECTOR:
“Time to revive the dominance of the Service Sector in Pakistan? Some food for thought.”

The share of services sector in the GDP stood at 57.74% in FY24 as per the new base year 2015-
16, showing a decrease from 58.41% in FY23, supported by close backward and forward linkages
with economic value added and output of commodity producing sectors (agriculture and industrial
sectors). Whilst the commodity-producing sectors achieved a 4% growth in FY24, this positive
momentum wasn't fully transmitted to the dependent services sector, which saw a more modest
expansion of 1.2%.
The table hereinbelow indicates the provisional growth of the services sector, and the share of the
sub-sectors of the services sector in the GDP.

Provisional
Share in GDP
Sub Sectors Growth/(Contraction)
(%)
2023-24 (%)
1. Wholesale and Retail trade 0.30 17.78
2. Transport, storage , and communication 1.20 10.53
3. Accommodation and Food Services Activities 4.10 1.48
4. Information and Communication (3.00) 2.73
5. Financial and Insurance Activities (9.60) 1.51
6. Real Estate Activities (OD) 3.80 5.85
7. Public Administration and Social Security (5.20) 4.11
8. Education 10.30 3.13
9. Human Health and Social Work Activities 6.80 1.76
10. Other Private services 3.60 8.86
Overall Growth 1.20 57.74
(Source: PBS)

III. PAKISTAN’S ECONOMIC GROWTH PROJECTIONS FOR 2024-25:

As per the APCC, the pace of the overall GDP growth is expected to lift up in FY25. The GDP
growth of the country for FY25 is targeted at 3.6% out of which, Agriculture, Industry and Services
sector are expected to post a 2.0%, 4.4% and 4.1% growth, respectively.

The economic outlook for the next year is optimistic, with a moderate growth target. This positive
trajectory hinges on several key factors including political stability and exchange rate stability.

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Provisional estimates of Target for 2024-25 (%)

GDP Components
APCC 2023-24 (%) (2015-16 Base prices)
A. Agriculture 6.30 2.00
Important crops 16.80 (4.50)
Livestock 3.90 3.80
Forestry 3.00 3.20
Fishing 0.80 3.10
B. Industrial sector 1.20 4.40
Mining and Quarrying 4.80 5.00
Manufacturing (i+ii+iii) 2.40 4.40
i. Large Scale 0.10 3.50
ii. Small Scale 9.10 8.20
Construction 5.90 5.50
C. Services Sector 1.20 4.10
Wholesale and Retail trade 0.30 4.10
Transport, storage and communication 1.20 3.30
Information and Communication (3.00) 5.70
Finance and Insurance (9.60) 5.70
Real Estate Activities (OD) 3.80 3.70
Education 10.30 3.50
Health & Social Activities 6.80 3.20
GDP Growth Rate 2.40 3.60
(Source: APCC)

The IMF’s forecast for Pakistan's growth for IMF’s Asian Economies Forecasted GDP
2024-25 is set at 3.5%1. Both the IMF and the Growth/(Contraction)%
World Bank have expressed concerns about an
10.00
extended period of stagnation in the global 5.00
economy. Furthermore, the IMF has lowered -
2024
its projected GDP growth for Asian
developing countries to 4.9% in FY25, a slight
decrease compared to the GDP growth rate of
Pakistan India China Bang Sri lanka
5.2% witnessed in FY242. 2024 2.00 6.80 4.60 5.70 2.70
2025 3.50 6.50 4.10 6.60 2.90

1
https://www.imf.org/en/Publications/CR/Issues/2024/05/10/Pakistan-Second-and-Final-Review-Under-the-
Stand-by-Arrangement-Press-Release-Sta -Report-548741
2
WORLD ECONOMIC OUTLOOK retrieved from
https://www.imf.org/en/Publications/WEO/Issues/2024/04/16/world-economic-outlook-april-2024

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IV. RE-PROFILING OF THE ECONOMY: A CASE OF IMF VS HOME

GROWN (“HG”).
Recently, Pakistan has initiated negotiations with the IMF for the 24 th time, for an Extended Fund
Facility (“EFF”) Programme. Pakistan is currently facing an exceptionally challenging situation,
which will have serious implications for the future of Pakistan’s economy. While Pakistan may
receive some immediate relief, achieving long-term economic stability will require implementing
Government’s own strategies. For a country like Pakistan, with a mammoth economic profile,
merely adjusting interest rates and exchange rates will not suffice. Therefore, Pakistan can achieve
self-discipline by reducing the CAD and the Fiscal Deficit through policies that are efficient in
practice.
Points to Ponder – IMF v/s HG:

Factors IMF HG
Meeting Immediate USD Requirements  X
International Confidence  X
Economic Discipline   *
Economic Growth X 
Rationalization Equity in Taxation X 
Decreasing Policy rate X 
International Fundings (World Bank. Asian Development Bank)  X
Controlling CAD X 
Reducing Fiscal Deficit X 
Boosting Domestic Economy X 
Enhancing Domestic Capital Formation X 
Immediate Relief to masses X 
Burden of Individual Taxation  X
*We can bring self-discipline reducing CAD and Fiscal Deficits

Revaluing the PKR to its true value of PKR 234/USD, will have a positive impact on various
macroeconomic indicators such as the inflation rate, policy rate, fiscal deficits, and debt levels.

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As per the valuation, the PKR was valued at 234/USD, whereas Goldman Sachs reported that the
PKR was undervalued by 20%, implying a value of 224 PKR/USD when the exchange rate was
280 PKR/USD.
Pakistan's Currency Parity
Further, another research house Optimus
(PKR/USD)
suggested that the rupee's parity value
should not exceed 243 PKR/USD. Based on
external sector indicators, the projection of
the true value of the rupee is to be 234 500

PKR/USD by the end of FY24. Further,

also by averaging these three valuations, 0
Goldman Optimus TA SBP
the valuations resulted in an average value Sachs Valuation
FY24 224 243 234 280
of 234 PKR/USD.
The APCC estimates an inflation rate of
12.0% for the upcoming FY25. Similarly,
the IMF projects an inflation rate of 12.7% for the same period. An analysis suggests that a
depreciation of the currency by 10 rupees would result in a 2% increase in the inflation.
By the year end, the PKR/USD exchange rate is expected to stand at 280, reflecting a difference
of (280-234 46 rupees) 46 rupees. This difference corresponds to an approximate 9% increase
in inflation for FY25. If the current exchange rate is adjusted by 46 rupees, inflation is expected to
decrease by 9%, which may also lead to a 9% reduction in the interest rate.

A 1% reduction in the interest rate will result in a decrease of PKR 434 billion in domestic debt
interest repayments. Consequently, a 9% reduction will lead to a decline in debt interest servicing
by approximately PKR 3,909 billion.

Re-profiling
Inflation Net saving on 1%
Current Policy Rate of Total Saving
Impact (PKR in Billion)
Policy rate
A B C = A- B D E=B x C
20.5% 9% 11.5% 434 3,909
Further, the exporters will benefit as well, considering that 70% of total exports are import-based,
whilst the remaining 30% is domestic based. If the currency appreciates, this 30% will need to be
adjusted for exporters through incentives.

Total Exports Revaluation of Export Incentives on Total Exports Incentives

($ in Billion) PKR/USD True value (PKR in Billion)

A B C=B*30%** I=A*C
30 45* 13.8 414
* Considering that 70% of total exports are import-based, whilst the remaining 30% is domestic based.
**Change in true value and existing value of currency (278.4-233.7=44.7  45)

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A 30% of the total adjustment of parity is PKR 13.8, given the 46 PKR/USD change. Consequently,
around PKR 414 billion should be provided as incentives to exporters. This amount can be
allocated from the savings realized through a reduction in the interest repayments.

Total Remittances Revaluation of Export Incentives on Total Remittances

($ in Billion) PKR/USD True value incentives

A B C=B*30%** I=A*C
30 45* 13.8 414
*Due to Remittances inflow is also average of $30 billion in FY, incentives would be same as Exporters
**Change in true value and existing value of currency (280-234=46)

As a consequence of the appreciation of the PKR, additional incentives can be extended to families
receiving remittances, aiming to mitigate the proliferation of hundi hawala within the economy.
Despite these given incentives, the Federal Government will retain sufficient fiscal capacity to
address the fiscal deficit.
PKR in Billion
Total Savings for reduction in Interest rates 3,909
Incentives to Exporters 414
Incentives to remittance recipients 414
Net saving 3,081

A similar scheme was implemented in 2016 but could not achieve desired results sans improving
the performance of exports. Bangladesh is already following this policy measure to boost exports
and control devaluation. Therefore, a proper strategic plan is essential. The Government must
identify which exporters are truly influential; otherwise, exports will remain stagnant in real terms.
Additionally, Pakistan needs to focus on becoming an agriculture export-based economy and work
on import substitution to strengthen our economic position.

V. CURRENT ACCOUNT DEFICIT:

According to the SBP, Pakistan’s CAD has declined to USD 202 million during July to April FY24,
against a huge deficit of last year of USD 3,920 million at the end of the Jul-April period for the
last FY23. It is crucial to note that the CAD has declined by 95% or USD 3.72 billion.
The current level of CAD is feasible and represents a positive development for the country's
economic outlook. Looking ahead to FY25, the IMF projects a CAD of 1.24% of the GDP, whereas
the APCC envisions a CAD to GDP ratio of 0.9%.

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As indicated in the chart, there is a

CAD Actual Vs. Target
noticeable divergence in the CAD
estimates provided by the IMF and the 1.4
1.2
World Bank for FY24. The IMF's estimates 1
appear to be disconnected from the ground 0.8
0.6
realities in Pakistan, as they forecast a CAD 0.4
of 0.8% of GDP or USD 3.0 billion for 0.2
0
FY24, which seems unrealistic. Such FY24 FY25
inaccurate estimates often lead to IMF Est. 0.8 1.2
recommendations for Pakistan to adopt Actual/Estimated 0.2 0.9
World Bank 0.7 0.6
contractionary policies.

The graph below shows the projections of CAD in coming years:

CAD Projections
60,000 1.40
40,000 1.20
20,000 1.00
- 0.80
(20,000) 0.60
(40,000) 0.40
(60,000) 0.20
(80,000) -
FY24 P FY25 T FY26 T FY27 T
Exports (Goods) 30,351 32,341 35,303 37,951
Imports (Goods) (51,110) (57,283) (62,328) (67,078)
Worker Remittances 28,782 30,278 31,706 32,911
Exports (Services) 7,784 8,169 9,136 9,823
Imports (Services) (9,922) (10,907) (13,088) (14,201)
CAD (USD in Million) (492) (3,707) (5,122) (5,955)
CAD (% of GDP) 0.10 0.90 1.10 1.20

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As seen in the graph titled as “Actual Jul- Jul-April

figure of CAD v/s Target”, as a result of CAD April
FY23 FY24 P FY24 T
planning faults and mismanagement in i. BOT in Goods (22,566) (17,684) (23,888)
addressing the CAD, as seen in the Exports of Goods 23,200 25,669 25,025
weighted average of the Planning Imports of Goods 45,766 43,353 (48,913)
Ministry's 10-month planning, Pakistan ii. BOT in Services (545) (1,906) (2,129)
has been compelled to adopt Exports of Services 6,367 6,442 5,606
contractionary policies, creating barriers to Imports of Services 6,912 8,348 7,735
economic growth. iii. Balance on Primary
Income (4,552) (6,138) (5,621)

iv. Balance on
Secondary Income 23,743 25,526 26,628

CAD (i + ii + iii + iv) (3,920) (202) (5,010)

VI. WORKER’S REMITTANCES:

On a cumulative basis, worker’s remittances have increased this year compared to FY23. At USD
27.09 billion in Jul-May FY24, the worker’s remittances hiked by 7.70% over the same period last
year. Economic stability is encouraging overseas Pakistanis to send more money back to their
families, which is contributing positively to the stability of the rupee-dollar exchange rate.

The chart and table below show the significant flows from key economic regions for the outgoing
Fiscal Year.

Country-wise Worker's Remittances

(PKR in Million)
7,000 30,000
6,000 25,000
5,000 20,000
4,000 15,000
3,000 10,000
2,000
1,000 5,000
- -
FY24 FY23
USA 3,209 2,895
U.K. 4,034 3,730
Saudi Arabia 6,616 6,017
UAE 4,880 4,331
Other GCC Countries 2,879 2,926
EU Countries 3,201 2,854
Malaysia* 121 98
Australia 585 546
Canada 460 509
South Africa* 183 199
Other Countries 925 1,039
Japan 47.1 70.1
Total Remittance 27,093 25,146

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VII. FOREIGN EXCHANGE RESERVES:

The reserves held by the SBP stood at $9.09
Foreign Exchange Reserves billion as of May 24th, 2024, representing a
(USD in Millions) decrease of 0.7%, or $63 million, compared to
reserves of $9.16 billion recorded on May 17th,
16,000
14,000 2024. Moreover, when compared to the reserves
12,000 for the same period last year (which were then
10,000
8,000 USD 4.09 billion), the Net reserves have gone up
6,000 by 122 times or USD 5.0 billion. The boost in
4,000
2,000 foreign reserves is mainly credited to the
-
NET NET TOTAL acquisition of the second and final installment
RESERV RESERV LIQUID
ES ES FX totaling $1.1 billion from the IMF. Therefore,
WITH WITH RESERV
SBP BANKS ES Pakistan's foreign exchange reserves have
26-May-23 4,091 5,422 9,513
24-May-24 9,094 5,222 14,315
reached its highest level in 22 months, exceeding
the IMF projection for the end of June 2024.

VIII. CREDIT TO NON-GOVERNMENT SECTOR:

CREDIT TO NON-GOVERNMENT SECTOR

500,000
400,000
300,000
200,000
100,000
0
-100,000
-200,000
24-May-24 26-May-23
Credit to Private sector 106,359 72,200
Credit to Public Sector Entities 1,844 262,922
Credit to NBFIs (119,589.00) 67,731
Credit to Non-Government
(11,386.00) 402,853
Sector

The credit to the non-Government sector, credit to public sector entities (“PSE”), and the Credit
to Non-Banking Financial Institutions (“NBFIs”) have declined. This indicates a substantial
reduction in lending or investment to both the PSE and NBFIs, which could be due to various
factors such as monetary tightening policies, increased risk aversion among lenders, or reduced
demand for credit within the NBFI sector.

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IX. NET GOVERNMENT SECTOR BORROWING:

According to the SBP, the net Government sector borrowing has surged to PKR 5,527 billion in
the current fiscal year, compared to PKR 3,014 billion during the same period last year (from July
1 to May 24, FY24, and May 26, FY23, respectively).

Net Government Sector Borrowing

6,000,000 6,000,000

4,000,000
4,000,000
2,000,000
2,000,000
-
24-May-24 26-May-23
(2,000,000) 0
24-May-24 26-May-23
Borrowings for Budgetary
5,682,232 3,014,241
Support
Commodity Operations (149,467) 346,601
Others (5,480) 530
Net Government Sector
5,527,285 3,361,371
Borrowings (a+b+c)

This significant increase in borrowing is primarily attributed to the elevated levels of the policy
rate during FY24. The high policy rate has led to increased interest repayments, necessitating
increased borrowing to manage fiscal obligations and fund Government expenditures. This trend
highlights the fiscal challenges faced by the Government in a high-interest-rate environment.

X. FISCAL OPERATIONS:
In terms of Pakistan's fiscal operations, they have struggled to collect the ongoing FY24’s target
set by IMF at PKR 9.415tr. Official figures show that from July to May of FY24, FBR’s tax revenue
stood at PKR 8.12tr; 31% or PKR 1.91tr higher than last year’s collection of PKR 6.21tr. The FBR
still needs PKR 1.23tr more to reach the revised tax revenue target for FY24. A target of PKR
1.178tr was initially projected for June, however the same has now been adjusted to account for
the PKR 75 billion backlog from previous months.

(PKR. In Billion) July-May 2022-23 July-May 2021-22 Percentage change Y/Y

FBR's Tax collection 8,122 6,208 30.8%
(Source: FBR Press Release)

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Further, the breakdown of tax revenue share is

FBR TAXES
given in the chart. Additionally, in May 2024, the
Custom
IMF and Pakistan completed second and final Duty
review under the stand-by arrangement. The plan 12%
FED
envisages FBR’s tax collection target of PKR
6% Income
12,240 billion for FY25 which would be 30.0%
tax
higher than the revised tax revenue target for 48%
FY24 of PKR 9.415tr. If inflation is projected at
12.0% and GDP growth at 3.5% in the upcoming Sales
Fiscal Year, then the FBR might easily collect Tax
34%
PKR 10.87tr worth of tax revenue. Moreover, the
IMF has recommended that Pakistan implement
additional taxes amounting to approximately
PKR 1.3tr in the upcoming budget.

XI. PAKISTAN’S DEBT PROFILE:

The total gross public debt stood at 62.0% of GDP and increased by 10.6% to PKR 65.5tr from
PKR 59.2tr. The total gross public debt comprises of the Government's domestic debt, external
debt, and IMF debt. Concurrently, the domestic debt stands at PKR 43.43 trillion, reflecting a
growth rate of almost 23.8%, while external debt has reached PKR 20.7 trillion, with a contraction
of 0.48% as of March 2024. Moreover, the debt owed to the IMF has slightly increased by 1.3%
to PKR 2.2tr to PKR 2.1tr.

Pakistan's Total Debt & Liabilities

(PKR in billion) March-24 March-23 % change
Domestic Debt 43,432 35,077 23.8
% of GDP 41.04 41.43
External Debt 21,942 22,047 (0.5)
% of GDP 20.74 26.04
Gross Public Debt 65,528 59,249 10.6
% of GDP 62.0 70.0
Nominal GDP 105,817 84,658

XII. SAVINGS AND INVESTMENT GAP:

The investment-to-GDP ratio has decreased from 14.1% of GDP in FY23 to 13.1% in FY24 as per
the report of the APCC, mainly because of a decrease in private investment which inched down
from 9.5% to 8.7% of GDP in FY24. Likewise, public investment has gone down to 2.8% of the
GDP from 3.0% of the GDP.

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Further, the National savings decreased slightly to 13% of GDP in FY24, down from 13.2% in the
previous year, primarily due to a reduced availability of foreign savings.

The table hereinbelow shows the target investment and savings for FY25:
Fiscal Year 2024-25 Fiscal Year 2023-24
% of GDP (mp)
Target Provisional Target
Total Investment 14.2 13.1 15.1
A. Fixed Investment 12.5 11.4 13.4
i. Public 2.8 2.8 3.2
ii. Private 9.7 8.7 10.2
National savings 13.3 13.0 13.4
External resource Inflow 0.9 0.1 1.7
(Source: APCC)

XIII. MONETARY DEVELOPMENTS:

In the FY24, the SBP implemented a substantial high policy rate throughout the FY24, rising to
22.0% in July 2023, with the same declining to 20.5% in the last MPC held on 10 th of June 2024.
The aim of the SBP has been to curb escalating inflation. Throughout most of the FY24, the SBP
adopted a tight monetary policy to counter the impact of the steep devaluation of the domestic
currency; however, the currency has been stable for the last five months.

M2 Components
(PKR in Billions)
4,000,000 3,000,000

2,000,000 2,000,000

0 1,000,000
24-May-24 26-May-23
-2,000,000 0
24-May-24 26-May-23
Total deposits with banks 2,732,744 784,970
other deposits with SBP 16,152 7,748
Currency in circulation -299,047 1,104,353
M2 2,449,849 1,897,071

Broad Money (M2) expanded by 7.77% between July 1, 2023, and May 24 th, 2024, compared to a
6.87% expansion during the same period last year. This growth was driven by a 6.29% increase in
Net Domestic Assets and an improvement in Net Foreign Assets. The rise in NDA was primarily
due to higher borrowings for budgetary support by the Government from commercial banks, which
saw a growth of 88.5% over last year.

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XIV. INFLATION: YoY MoM

Jul-May
FY24
In a recent report, the PBS reported that the
CPI National 11.80 (3.20) 24.52
monthly rate of inflation has eased to 11.8%
in May 2024 on a Y-o-Y basis in Pakistan, Food Inflation (Urban) 2.20 (6.30) 25.30

marking the lowest annual inflation rate in Food Inflation (Rural) (0.10) (7.40) 25.00
nearly 29 months. This substantial decline WPI 9.90 (2.50) 21.12
in the rate of inflation is due to the decline Core Inflation (Urban) 12.30 0.40 16.60
in food inflation to a single digit in both the Core Inflation (Rural) 17.00 0.50 23.50
urban and rural areas of Pakistan.
(Source: PBS)

The declining trend in inflation continues, as the average inflation in Pakistan has declined to
24.5% in Jul-May FY24, compared to 29.12% a year ago for the corresponding period in FY 23.
The graph hereinbelow illustrates the average inflation since FY15 as under:

Annaul Inflation
(%)
50

0
4.5 2.9 4.8 29.2
4.7 6.8 10.7 8.9 24.5
12.2
Annaul Inflation (%)

FY24
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
(Jul-May)
Annaul Inflation (%) 4.5 2.9 4.8 4.7 6.8 10.7 8.9 12.2 29.2 24.5

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ANNEXURE I
KEY MACROECONOMIC INDICATORS

Current
GDP Avg CPI 2023 Real Interest Rate Per Capita
S. Policy Rate Account Deficit
Country 2024 F Y-o Y (%) GDP
No. (%) 2023
(%) (%) (Policy rate – CPI) (Current USD)
(% of GDP)
1 Argentina (2.80) 249.8 40.00 (209.80) (0.60) 13,651
2 Iran 3.30 37.50 23.0 (14.50) 3.40 4,670
3 Türkiye 3.10 59.50 50.0 (9.50) (4.00) 10,675
4 Pakistan 2.38 24.50 20.50 (4.00) (0.10) 1,680
5 Egypt 3.00 32.50 27.25 (5.25) (1.20) 4,295
6 Sri Lanka 2.20 0.90 8.50 7.60 (1.90) 3,354
7 Hungary 2.20 3.70 7.25 3.55 0.30 18,930
8 Ukraine 3.20 6.40 13.50 7.10 (5.70) 4,534
9 Poland 3.10 5.00 5.75 0.75 1.60 18,688
10 Czech 0.70 2.10 5.25 3.15 0.20 27,227
11 Chile 2.00 3.20 6.00 2.80 (3.60) 15,355
12 Bangladesh 7.50 9.30 8.50 (0.80) (1.00) 2,688
13 UK 0.50 2.50 5.25 2.75 (3.30) 46,125
14 Italy 0.70 1.90 4.50 2.60 0.50 34,776
15 Netherlands 0.60 2.70 4.50 1.80 11.10 57,025
16 Belgium 1.20 3.60 4.50 0.90 (1.00) 49,920
17 USA 2.70 2.90 5.50 2.60 (3.00) 76,330
18 Brazil 2.20 4.10 10.50 6.40 (1.42) 8,918
19 India 8.20 4.60 6.50 1.90 (3.30) 2,411
20 Russia 3.20 6.90 16.00 9.10 2.50 15,271
21 China 4.60 1.00 3.45 2.45 1.50 12,720
Note 1: GDP and CPI 2024 growth forecast gathered from IMF’s World Economic Outlook April 2024.
Note 2: Policy rate data extracted from Trading Economics
Note 3: *CAD Extracted from the IMF website.
** CAD Extracted from the websites of Central Banks.

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