Author: Ibraheem Sohail

The private sector has returned a colossal 440 billion rupees to banks in just two weeks. This has reversed the liquidity inflows seen earlier in the fiscal year (FY) when commercial bank lending surged beyond one trillion rupees in late 2024 – to avoid paying additional taxes to the government for their low levels of lending to the private sector. 

As per data released by the State Bank of Pakistan (SBP) on Wednesday, funds borrowed at the tail end of 2024 began flowing back to banks after bankers realised that the 15 percent incremental tax on the advance-to-deposit ratio (ADR) had been averted because of higher lending levels.

Between January 17 and 31, private sector credit plummeted from a liberal 1.398 trillion rupees to just 958 billion rupees, which translates into a staggering decline of 440 billion rupees over the period.

According to reports, banks extended large sums of money to private businesses to close out the first half of FY 2024-25. Banks did this to meet Islamabad’s requirement of maintaining an ADR of over 50 percent before January 2025 – A feat they were able to achieve.

Despite banks successfully meeting this threshold, authorities have raised the ADR to 55 percent to ensure the flow of additional funds to businesses. Businesses could use these funds to expand the scope of their operations and scale up to boost profit margins.

Banking experts had initially expected that the sharp drop in interest rates would encourage more borrowing, which is in line with the inverse relationship between interest rates and borrowing levels. However, instead of lower interest rates boosting credit demand, borrowing from banks dwindled instead. According to business owners, more factors boost business growth than low interest rates, as high taxes and elevated borrowing costs hinder industrial expansion and commercial activity.

Economic analysts have outlined how agriculture and large-scale manufacturing are witnessing negative growth – which, according to reports, is reducing demand for bank financing.

Data from the SBP shows a steep decline in credit extended by the conventional, which dropped from a respectable 722.6 billion rupees on January 17 to a measly 325 billion rupees by the end of the month. Islamic banks also witnessed a sharp fall, with their loan disbursements shrinking by a whopping 66 billion rupees to 559.5 billion rupees over the same period.

Reports suggest that the surge in lending last year was a strategic attempt by commercial banks to avoid additional taxes. Many feel that the creation of new loans by banks was more of a ploy to meet ADR requirements rather than an attempt to fuel business expansion. Analysts remain sceptical regarding the economy’s recovery because of the aforementioned circumstances.

Islamabad’s crusade against non-filers continues, as additional restrictions have been placed on them. According to reports, commercial banks have been instructed to disclose data regarding transactions that exceed an individual’s stated income on their tax return documents.

However, The National Assembly Standing Committee on Finance and Revenue has simultaneously relaxed purchase restrictions on non-filers. Non-filers will now be allowed to purchase cars under 800cc, motorcycles, rickshaws and, most importantly, tractors.

This spells great news for businesses as a greater assortment of their products will now be safe from the drop in demand that government restrictions on non-filers will bring. The protection of unrealised profits could boost business confidence in government policies.

Initially, the Pakistan Stock Exchange (PSX) witnessed a significant slump after the barring of non-filers from trading activities. Islamabad has lifted some of the restrictions on the sale of goods and services to non-filers, which could be an attempt to safeguard businesses from falling sale volumes.

MNA Naveed Qamar chaired a meeting of the committee to review parts of the tax amendment bill. According to reports, the remaining arrangements regarding the review will be complete once the next committee session ends.

The committee expanded the purchase eligibility of non-filers by removing tractors from the list of goods non-filers could not purchase. However, banks will now be required by law to report unusual transactions made by non-filers.

Furthermore, members of the committee requested an explanation of the phrase ‘cash and equivalent assets’ in Clause (5)(a) of the bill. Reports have revealed that the Federal Board of Revenue (FBR) has created a new online system and mobile application. The integration of technology could significantly assist FBR officials in their duties.

In January, the FBR fell short of its revenue target by a colossal 386 billion rupees. According to reports, the shortfall could be attributed to a fall in tax receipts. The use of technology could significantly streamline FBR processes, allowing officials to possibly achieve the revenue target for fiscal year (FY) 2024-25, which currently sits at an ambitious 12.9 trillion rupees.

MNA Bilal Azhar claimed that the developments could improve tax frameworks across Pakistan, allowing for increased collection levels. This spells great news for lawmakers in Islamabad as higher revenue levels could allow the federal government to deviate from the prolonged contractionary fiscal policy measures in the next federal budget.

Reports reveal that a subcommittee on finance and revenue suggested that Islamabad set price thresholds for transactions instead of the FBR. This would ensure that normal citizens do not face financially discriminatory treatment from authorities reserved for non-filers.

The Chairman of the National Accountability Bureau (NAB), retired Lieutenant General Nazir Ahmed Butt, has shed light on the extent of corruption in the real estate market. Association of Builders and Developers (ABAD) press release revealed that land documents for 7,500 acres in Karachi alone have been falsified over the years.

The value of the land suggests that approximately three trillion rupees worth of land has been encroached upon using unlawful means. According to Nazir Ahmad, going over these cases will cause a “great upheaval”.

Reports suggest that the chief of Pakistan’s top accountability watchdog expressed resentment toward the development authorities of Lyari, Malir, and Karachi for failing to relinquish possession of land to the legal allottees. The aforementioned development authorities have failed to hand over possession to the allottees, in some cases dating back 40 years.

If ABAD presents evidence against those with falsified land deeds, authorities could take legal action against the perpetrators. ABAD’s collaboration with the NAB could significantly fast-track the process of victims getting justice.

In the last five years alone, about 85,000 structures have been illegally erected in Karachi. Reports claim that officials in the Sindh Government have historically been accused of skipping auctions and other legal procedures to sell land, often opting to sell land privately to people they know for benefits.

The ADAB chief, Muhammad Hassan Bakshi, spoke about how this issue could be remedied by implementing a land grant policy. However, if transparency is to be ensured, the beneficiaries of possible land grant schemes in the future should be studied thoroughly so that land gets passed on to those who truly deserve it.

According to reports, the NAB’s chairman implored officials from the ADAB to share data regarding the illegal construction of buildings in Karachi. Once NAB receives this data, illegal buildings are likely to be either regularised or demolished.

Over the last eight months, relevant authorities have reclaimed four trillion rupees worth of agricultural land in Sindh. Data from NAB has revealed the land size of reclaimed land to stand close to a whopping 1.8 million acres. This land, which was previously illegally occupied, has now been passed over to the revenue department for processing.

Currently, Sindh is not equipped with an efficient record-keeping system. Various government departments responsible for overseeing matters pertaining to land had reportedly been running without communicating with each other.

If land records get digitised, analysts claim that a significant reduction in corruption could be noted. Officials have outlined how digitising land records is imperative falsifying land records has become commonplace.

Pakistan saw a large influx of remittances during the first seven months of fiscal year (FY) 2024-25. Owing to the strong inflows, Islamabad has managed to meet the five-billion-dollar foreign reserve inflow growth target.

Data from the State Bank of Pakistan (SBP) reveals that a staggering $20.8 billion was received in remittances from July 2024 to January 2025. This represents a growth rate of 31.7 percent when contrasted with the corresponding period from last year, as remittances during that time frame stood at a measly $15.8 billion.

Previously, SBP Governor Jameel Ahmed and Finance Minister Mohammad Aurangzeb informed the media that Pakistan would meet its $35 billion remittance target by the end of the current fiscal year. However, liberal remittance inflows have allowed Pakistan to meet this growth target five months in advance.

While this spells great news for the cash-strapped nation, it sets an unrealistic pressure on relevant authorities to boost remittance inflows even higher. The most probable scenario for the upcoming fiscal year will be strong remittance inflows, but lower than the abnormally high inflows Pakistan enjoyed in the current fiscal year.

This would be a classic case of regression to the mean, which refers to the concept of extraordinary inflows of the first year setting an unrealistic baseline, making a return to normal levels look like a major decline even if remittances remain strong based on historical trends.

For lawmakers and relevant authorities, this improvement could allow future inflow statistics to paint their policies in a bad light in the coming periods despite actually benefitting the economy instead.

As per a press release from the SBP, worker remittances in January 2025 alone brought in over three billion dollars into the economy, which translates into an astronomical rise of 25.2 percent compared to the corresponding period last year as remittances were reportedly $2.4 billion in January 2024.

According to data, the Kingdom of Saudi Arabia (KSA) was responsible for bringing in over $700 million into Pakistan alone. The United Arab Emirates and United Kingdom were a distant second and third, with $621.7 million and $443.6 million, respectively. Of January’s three-billion-dollar remittance inflow, the United States of America’s share stood at a little under $300 million.

As per reports, inflows in all relevant countries surged during the first seven months of FY 2024-25. This shows Islamabad’s dependence on remittances to meet foreign exchange demands.

Pakistan’s industrial base does not bring in significant amounts of foreign reserves vis-a-vis exports, making remittance inflows essential to keep Pakistan’s cash-strapped economy afloat practically. Islamabad recognises this fact and has even launched a loan scheme to assist individuals in moving abroad, as this might bring in a steady stream of remittances in future periods.

2024 witnessed Islamabad’s robust efforts to boost the economy out of the quagmire it found itself in. Prime Minister ‘Shehbaz Speed’ helped steamroll the economy by attempting to ensure that all indicators were moving in a positive direction.

The state, under Shehbaz Sharif, witnessed great success in turning the economy around as inflation rates plummeted to single digits, the Pakistan Stock Exchange (PSX) witnessed historic highs, and the trade deficit shrank to a more manageable level.

According to reports, inflation rates fell to their lowest level in approximately seven years. This marks a huge victory for the State Bank of Pakistan (SBP), which raised interest rates to an extortionate 22 percent to reduce inflationary pressures in the economy.

Inflation now sits comfortably in the single digits, with economic experts predicting that the inflation rate will remain fairly stable in the upcoming period. This is because inflation rates seem to be under control despite the SBP slashing interest rates by about 1000 basis points in the past few months.

As per reports, essential goods became more affordable under Shehbaz Sharif’s tenure as wheat and flour prices witnessed a noticeable decline. Earlier this month, data revealed that CPI inflation tanked to just 2.41 percent, representing the largest drop in approximately nine years.

However, the inflation situation is not as optimistic as it may seem at first glance. For instance, the price of other essential goods, such as potatoes and pulse grams, rose sharply by over 40 percent each in urban areas. The rise in the prices of the aforementioned goods was even more pronounced in rural areas lurking near 50 percent instead.

As such, inflation statistics must be taken with a grain of salt as the prices of some goods and services can witness increases too.

The business community has benefitted immensely from state policies to boost commercial activities. KSE-100, the benchmark index of PSX, saw an investment spike which led the index to cross the 109,000-point mark.

Reports reveal that investors poured large sums into the PSX, resulting in an additional eight billion rupees in market capitalisation. While Islamabad wanted to boost investor confidence, some of its policies ended up inadvertently causing a slump in the PSX. Shehbaz Sharif, along with Finance Minister Muhammad Aurangzeb, attempted to crack down on tax evaders while also eradicating the use of black money for commercial transactions.

This policy, undoubtedly designed with the best of intentions, caused a sharp decline in the PSX as it would have effectively barred certain individuals from partaking in trading activities.

Additionally, Commerce Minister Jam Kamal Khan’s tireless efforts to boost exports managed to boost export revenues to $30.64 billion. While Islamabad was unable to eradicate the trade-deficit entirely, the gap reduced by an impressive 12.3 percent.

The federal government’s contractionary fiscal policy measures failed to hold a budget surplus, as a deficit of 1.54 trillion rupees was recorded. According to reports, the fiscal balance of the cash-strapped nation reverted from a surplus in the first quarter of the fiscal year (FY) 2024-25 into a deficit at the end of the first half of the current FY.

The budget deficit amounts to 1.2 percent of Pakistan’s Gross Domestic Product (GDP). Tax officials at the Federal Board of Revenue (FBR) recently failed to generate a respectable amount of revenue as collection levels fell short by 386 billion rupees in the first half of FY 2024-25. This failure on the part of the tax watchdog could partially explain the fiscal deficit Islamabad is grappling with.

As per reports, a 0.43 trillion rupee statistical discrepancy was noted in the one-trillion-rupee plus deficit.

For Islamabad, news of the fiscal deficit comes at a horrendous time as a mission from the International Monetary Fund (IMF) is expected to arrive at the end of February. IMF officials are expected to engage with Pakistan’s top leadership for review talks with respect to the disbursement of additional funds to Pakistan from the seven-billion-dollar Extended Fund Facility (EFF) program.

According to financial experts, one of the primary factors for the fiscal surplus in the first quarter of FY 2024-25 was the unnaturally large profit levels that the State Bank of Pakistan (SBP) was able to generate. These funds resulted in the deficit turning into a surplus when allocated to the budget.

The SBP was able to generate these abnormally large profits because of the high interest rate. The surge of policy rates to 22 percent undoubtedly slowed the economy down. However, the SBP emerged as a beneficiary of the high rates.

IMF Mission Chief Nathan Porter has been hosting conferences with FBR officials to finalise details regarding the upcoming review talks. According to reports, the talks between the IMF and concerned Pakistani authorities will be held in Islamabad at the end of February.

As per data from the Ministry of Finance, expenditures on debt financing and defence made up the lion’s share of Pakistan’s fiscal outflows. On the other end of the spectrum stood the Federal Public Sector Development Programme (FPSD), which received a measly 0.132 trillion rupees during the first half of FY 2024-25.

Entries into both sides of the fiscal account did not match, resulting in a statistical discrepancy in the value of 0.23 trillion rupees in the federal government’s budget. Analysts are speculating about possible outcomes of talks with the IMF regarding Pakistan’s ability to secure future disbursements if fiscal deficits persist.

Islamabad has decided to withdraw from the domestic wheat market system by eliminating the annual announcement of the minimum support price. As per the National Food Security and Research (NSFR) secretary, the government will not uphold its longstanding policies that offer minimum support prices to farmers for wheat.

This decision to stop meddling in the national wheat market comes after Pakistan’s agreement with the International Monetary Fund (IMF). The NSFR secretary assured the committee that Pakistan has adequate wheat stocks and, thus, does not need to rely on imports for the current period.

He also confirmed that no restrictions exist on intra-national transportation of wheat. As the wheat supply is seemingly exceeding its demand, Islamabad has decided to collaborate with private entities to provide farmers with storage facilities. According to reports, the government is also working closely with commercial banks to facilitate the process of farmers obtaining storage facilities.

Previously, Islamabad intervened in the wheat market to stabilise domestic prices by keeping them below the price of imported wheat. This was especially beneficial for customers with low household incomes, as a large proportion of their income is usually spent on procuring adequate nutrition.

Farmers also greatly benefitted from the policy as the existence of an MSP reduced price fluctuations while guaranteeing a fallback option for producers in the event that their yields did not attract buyers in the market.

MNA Syed Tariq Hussain chaired the meeting of the National Assembly Standing Committee on National Food Security. He outlined the dangers of a potential wheat shortage in the coming year because of suboptimal rainfall levels and extreme heat.

Reports reveal that while addressing the issue of subsidies for Gilgit-Baltistan, the NSFR secretary clarified that the government has not eliminated them and that Islamabad is in the process of digitising the system to enhance transparency.

Considering ongoing challenges, the committee chairman instructed the ministry to draft a 20-year plan to tackle the impact of population growth and climate change on agriculture. The plan, which needs to be submitted to parliament for approval, aims to boost yields by investing in advanced techniques and research.

Rice productivity reportedly remained the topic of discussion, among other things, as the ministry announced an 8-maund-per-acre increase in yields. Officials from the Pakistan Agricultural Research Council (PARC) reported that they have developed eight new rice varieties after their research activities.

The new rice varieties are capable of producing 90 to 100 maunds per acre and are of export quality. If farmers grow rice of the aforementioned varieties, exported yields could bring in much-needed foreign reserves for the cash-strapped country.

In a bid to significantly bolster bilateral commercial activities with Saudi Arabia, Pakistan’s first ever single-country ‘Made in Pakistan’ exhibition was held in the Kingdom’s Jeddah city.

Inaugurating the event, Commerce Minister Jam Kamal Khan stressed the significance of economic collaboration between the two countries, outlining numerous avenues where Pakistan and Saudi Arabia were collaborating with respect to the economy.

He also extended his appreciation towards Saudi officials for their support in setting up the entire event, and said the exhibition was an embodiment of the lasting Pakistan-Saudi bilateral ties.

The minister said that strategic partnership was strengthened by shared cultural ties and a common religion, and outlined how Pakistan’s goods and services would gain traction by being displayed at the exhibition.

The minister said he intends to increase investment inflows into the country while improving trade relations with Saudi Arabia. According to him, this will be possible by closely following a certain economic roadmap.

Reports said the minister also commented on how the two countries could potentially collaborate on issues pertaining to food security, mining, energy and human resource (HR) development. He mentioned that Pakistan could leverage its growing industrial base and flexible economy to work on collaborative projects.

Kamal said that Saudi investments would be prioritised in the country and that investors could go through channels set up by the Special Investment Facilitation Council (SIFC) to benefit from investment opportunities. Islamabad’s stance seems to be one of utilising Saudi Arabia’s Vision 2030 to boost investment inflows into the country.

While congratulating the Kingdom for winning the rights to host the 2034 FIFA World cup, the minister also took the opportunity to display Pakistan’s football manufacturing industry. He said that Pakistan would continue to produce footballs for World Cup events.

While the exhibition of textile, sports gear, construction materials and foodstuffs spells great news for many, it could especially benefit cement manufacturers as local demand has seen slumps in the recent past. The expansion of the cement industry into international markets will allow for business owners to route additional cement cargoes abroad until local demand recovers.

However, citizens may be hit hard by additional foodstuff exports as a fall in supply of grain and vegetables could raise prices even further. Recently, Pakistan boosted food exports to Bangladesh which resulted in rising local prices. Analysts are speculating that additional exports might give way to inflationary pressures resulting rising prices.