Author: Ibraheem Sohail

The State Bank of Pakistan (SBP) bought a staggering $3.8 billion from the interbank market in the first four months of fiscal year (FY) 2024-25. This was reportedly an attempt by the SBP to boost foreign exchange reserves and meet debt repayments.

According to independent bankers, the recent surge in remittance inflows boosted liquidity in the interbank market. This allowed the SBP to purchase a vast quantity of dollars without creating significant pressure on the exchange rate, which has remained stable for the past year.

Reports revealed that from June 2024 to October 2024, the SBP’s net foreign exchange interventions reached $3.8 billion. The SBP even received the first $1.03 billion tranche under the International Monetary Fund’s (IMF) $7 billion Extended Fund Facility at the end of September 2024, which represents a heightened level of activity by the SBP in intermarket operations.

The head of research and Investment Strategy, who works at a reputable bank, stated that the purchase of foreign currency by the SBP exceeded the country’s borrowings in the corresponding period. This shows a possible revitalisation of the SBP, which would be a good sign for the economy.

From June to October 2024, the SBP’s foreign exchange interventions allowed the banking watchdog to build up its reserves by a colossal $2.1 billion. The remaining interventions amounting to $1.7 billion were made to make debt repayments as per reports.

The SBP governor assured that most debt service payments had already been taken care of, while the remaining amount would be rolled over to the next period. While this spells great news for Islamabad, reports indicate that the cash-strapped nation still needs approximately $5 billion in the second half of FY 2024-25 to deal with the debt problem.

Reports have indicated that bankers remain optimistic as they are reportedly claiming that the SBP could easily acquire an additional $5 billion from the interbank market if remittance inflows continue to post respectable growth rates.

Data from reports has revealed that remittances ballooned to a staggering $17.8 billion in the first half of FY 2024-25, representing an improvement of 33 percent in remittance inflows.

Finance Minister Mohammad Aurangzeb said that remittance levels could exceed during the current fiscal year $35 billion. If his prediction stands true, the SBP could purchase even more foreign currency to build up its reserves.

If the SBP can achieve this and protect the exchange rate from volatility, Pakistan might soon witness rising foreign direct investment levels. However, while economic indicators do remain positive, the same cannot be said about the political scene, as uncertainty remains a major concern for foreign investors, often serving as a deterrent for them from parking their funds into the country.

The Prime Minister’s Youth Scheme will now also offer financial assistance to individuals seeking jobs abroad. As per reports, loans of up to one million rupees can be availed by those who want to settle in a foreign country.

The loan amount will be disbursed to cover essential costs, which include travel expenses, training and visa fees. Chairman of the Prime Minister Youth Programme, Rana Mashhood Ahmad Khan, outlined the importance of this initiative.

Rana stated that this program would equip young Pakistanis with better economic opportunities and enable them to secure international employment contracts. According to him, this effort aligns with Islamabad’s broader goal of ensuring financial stability for the youth – which could be made possible by expanding their employment opportunities.

Rana also revealed that the prime minister’s Youth Loan Scheme has already disbursed a staggering 186 billion rupees, reflecting the scheme’s growing popularity. He further commented on the loan amount, portraying the confidence young individuals have in the scheme.

Analysts believe this expansion could further strengthen the initiative’s impact, as additional financial support could help job seekers transition from the domestic labour market to the international one.

Moreover, the State Bank of Pakistan (SBP) recently announced an extension of the youth loan scheme. These benefits will expand the scope of SBP’s scheme beyond its current objective of just providing business loans.

As per reports, young individuals will now also be eligible for laptop financing, enabling them to enhance their education and professional skill set. This decision is part of Islamabad’s strategy to improve access to digital tools and empower students with technology.

Rana stated that students in the age range of 18 to 30 who are currently enrolled in Higher Education Commission-approved institutions can now apply for laptop loans. This measure could assist financially constrained students. Further reforms are also in the works as Islamabad prepares to expand the scheme’s reach and effectiveness.

If implemented successfully, this initiative could significantly stabilise Pakistan’s economy. By facilitating youth employment abroad, the cash-strapped country stands to benefit from a higher inflow of remittances, which have historically remained a key pillar of Pakistan’s economy.

Highly skilled professionals returning to Pakistan after gaining international experience could help mitigate the ‘brain drain’ problem analysts claim Pakistan is the victim of. However, if individuals choose not to return to the country, a downward pressure could be noted on the unemployment rate.

Islamabad has committed to make significant changes to the cotton sector in an attempt to revive it.

As per the details, the Pakistan Cotton Ginners Association (PCGA) revealed that production levels fell short of the targets set for 2024-25 by a staggering 34 percent.

National Food Security Minister Rana Tanveer Monday announced that Islamabad will review the extortionate 18 percent General Sales Tax (GST) on local lint. According to the minister, this move would introduce fairness in the current market environment.

Currently, GST is levied on domestic cotton while imported cotton and yarn arrive duty free into the country. Textile millers have thus preferred to purchase imported cotton as it is more economical for production. This has served to the detriment of local cotton farmers who are struggling to compete with cheap cotton imports.

Tanveer said that agents with vested interests in the production of cotton will go over strategies to attempt to revive cotton production levels. These discussions will take place as part of the National Cotton Revival Conference on Tuesday. He pledged that the ministry will support farmers in order to boost cotton production levels.

According to reports, Islamabad aims to collaborate with international agencies such as the International Cotton Advisory Committee (ICAC). Officials are interested in such collaboration opportunities as it may enable growth for the cotton sector, effectively propelling Pakistan up the ranks in the international cotton market.

Tanveer met with ICAC Executive Director Eric Trachtenberg who was leading a delegation to Pakistan. Reports revealed that the meeting covered cotton trade, production and even the development of the textile sector.

As per data from the PCGA, Pakistan was only able to produce half of the targeted level of lint for crop year 2024-25. This reveals the extent to which duty-free cotton imports have hampered domestic cotton yields.

The Federal Committee on agriculture had set the targeted level of cotton bale production at 11.2 million bales. However, the agricultural sector only produced a measly 5.5 million.

While reduced input supply usually results in manufactures clambering for said inputs, the reverse is being witnessed in Pakistan. Despite a significant fall in domestic cotton supply, ginning factories and spinning mills possess large stocks of the commodity.

Ginning factories have an additional 114,000 bales in their inventories, bringing their total cotton stock up to 486,000 bales. This represents a sharp 31 percent rise in stock held by industrialists.

The reason behind this seemingly contradictory fact is that millers and ginners are procuring a vast majority of their cotton inputs from imports. As per reports, a staggering 1.5 million cotton bales have been imported with import agreements totaling the purchase of an additional 3.5 million cotton bales in the pipeline.

Pakistan’s year-on-year (YOY) Consumer Price Index (CPI) inflation rate dropped down to just 2.41 percent in January with reports indicating that this is its lowest level in over nine years.

The fall in inflation- disinflation- is a result of falling price levels in the economy. Data from the Pakistan Bureau of Statistics (PBS) revealed that the CPI inflation rate stood at a staggering 28.3 percent just a year prior in January 2024.

However, PBS reported a rise in monthly CPI inflation from 0.1 percent in December 2024 to 0.2 percent in January 2025. While marginal, this represents a 100 percent rise in Month on Month inflation over the aforementioned period.

The fall in inflation rates can be linked to the sky high interest rates which the State Bank of Pakistan (SBP) set to tackle an issue that had been plaguing the economy – rising price levels. SBP had raised interest rates to approximately 22 percent in 2024.

However, the SBP has effectively slashed interest rates down to just 12 percent in the past six and a half months as disinflation took charge. The 1,000 basis point cut by the SBP has sent inflation into a downward spiral which spells great news for a vast majority of Pakistanis.

A drop in inflation effectively increases the purchasing power of consumers as their income can procure more goods and services with lower price tags. However, while the general level of prices in the economy has fallen, prices for certain commodities has increased.

On a YOY basis, food items such as potatoes, besan and pulses displayed significant increases in prices both in rural and urban areas. For instance, in the urban areas, the YOY price of potatoes, besan and pulses skyrocketed by an extortionate 45.12 percent, 44.72 percent, and 41.73 percent respectively. The corresponding YOY rise for rural areas was 49.32 percent for Potatoes, 45.85 percent for besan and 45.24 percent for pulses.

Despite rural areas having a lower income (on average) compared to urban areas, these regions witnessed a larger increase in prices depicting the financial plight of their residents. However, data revealed that the reverse was true for non-food items.

As per data, urban prices rose primarily because of Motor vehicle tax rising by a staggering 168.79 percent. Services in urban areas such as medical tests and dentist visits underwent a modest rise of 15.16 percent and 26.16 percent respectively.

In comparison, rural prices for non-food items rose conservatively as motor vehicle tax rose by 126.61 percent while the prices of dental services increased by 18.41 percent.

The Federal Board of Revenue (FBR) failed to meet its revenue target by a staggering 85 billion rupees. As per reports, the reason behind the failure was the economy’s ‘lower than expected’ inflation rate.

The revenue watchdog collected just 872 billion rupees despite its target collection level sitting at 957 billion rupees. The 85-billion-rupee gap translates into an approximate 10 percent deviation from target revenue levels.

While the gap seems alarming, provisional data revealed that collection levels are, in fact, 26 percent higher compared to last year. As per reports, collection levels sat at a measly 677 billion rupees last year, outlining the progress the FBR has made over the past year.

The gap between revenue collection levels and the target amount has surged to 468 billion rupees during the first half of Fiscal Year (FY) 2024-25. Reports claim that meeting the target revenue levels might now be a herculean task.

Furthermore, recent controversies surrounding a purchase order of automobiles by the department might make it difficult for officials to perform their daily operations efficiently. Senator Faysal Vawda levelled corruption allegations against the board while also alleging that certain FBR officials threatened him for being a whistle-blower.

FBR chairman Rashid Mahmood Langrial ordered an internal investigation into these allegations, which might divert precious resources away from tax collection purposes. The procurement of cars would have reportedly boosted collection figures, which, according to provisional data, sit at 6.497 trillion rupees for the first seven months of FY 2024-25.

Experts have revealed that the revenue shortfall stems from a fall in import-based taxes, suboptimal growth in the manufacturing sector and, most importantly, low inflation levels.

Owning to Islamabad’s crackdown against illegal exchange operations and the SBP’s high interest rates, inflation has remained in single digits in the past few months.

As per reports, analysts have dubbed Islamabad’s revenue target of 12.313 trillion rupees for FY 2024-25 as ‘overly ambitious’. The revenue target stands 40 percent higher than the one set by Islamabad last year.

Islamabad believes that it can extract another 3.659 trillion rupees in revenue during FY 2024-25 from three main avenues. This will be possible if Gross Domestic Product (GDP) grows at a rate of three percent, the import growth rate touches 16.9 percent, and the manufacturing sector grows by 3.5 percent.

According to reports, real revenue collection levels in FY 2024-25 might touch 12 trillion rupees. The shortfall is likely to be remedied by cutting back on expenditures rather than levying additional taxes.

Governor of State Bank of Pakistan (SBP) Jameel Ahmad has revealed that agricultural credit disbursement reached a staggering 2.216 trillion rupees in the first half of FY 2024-25. As per reports, financial institutions issued 25 percent more credit to the agricultural sector compared to the previous year.

The governor attended an Agricultural Credit Advisory Committee (ACAC) meeting where he reiterated the SBP’s will to support the agricultural sector via additional financing. He explained that 2.86 million debtors had already received 1.266 trillion rupees in the third quarter of FY 2024-25.

According to Jameel, the agricultural sector partially serves as the backbone of the economy as it eradicates issues pertaining to food security while supporting rural households that are not integrated with larger sectors.

The senior SBP official conceded that there were numerous issues currently plaguing the agricultural sector that need to be addressed, including climate change, subpar productivity and the lack of strong formal financial institutions.

While speaking at the meeting, Jameel urged banks to strongly consider agricultural finance as a primary business operation. Currently, however, a large number of banks issue loans to the agricultural sector as a secondary business activity and prefer to refrain from providing credit to smaller farmers.

Analysts explain bank behaviour by pointing towards the costly nature of enforcement and monitoring while lending to the rural sector. Often, the costs exceed the revenues, making it unprofitable to lend money to farmers.

Jameel outlined the importance of commercial banks in the quest to expand the financial system, especially in rural areas. The governor explained that banks could achieve this by increasing the number of branches and credit officers in areas with limited financial coverage. If implemented, the governor believes that the measure will greatly support smaller farmers.

According to reports, agricultural growth stagnated in the third quarter of FY 2024-25, declining to a measly 1.2 percent compared to a respectable 8.1 percent growth rate in the same period last year. The drop in growth rates reportedly resulted in a suboptimal GDP growth rate of under one percent during the third quarter of FY 2024-25.

Jameel outlined three factors financial institutions and relevant stakeholders need to consider in order to support the neglected agricultural sector: tackling climate change issues, modernising farming tools and focusing on the livestock sector.

As per reports, the governor mentioned the need for the sector to be provided with green financing and training to tackle food security issues.

Further, he stressed the importance of implementing state-of-the-art facilities to transform the agricultural sector. These facilities include geospatial technologies as they allow farmers to monitor their crops efficiently while reducing production-related risks.

Islamabad has taken credit for the drop in inflation from 28.8 percent to just 7.2 percent during the first half of fiscal year (FY) 2024-25. The government asserts that falling inflation rates can be attributed to the crusade against smuggling, hoarding and illegal foreign exchange operations.

According to the announcement made by the Finance Ministry, the slowdown in inflation was made possible by the federal government’s responsible fiscal policies. Furthermore, the stabilisation of the exchange rate, coupled with improved procurement for essential commodities, helped control rising prices.

The announcement further revealed that Islamabad’s crackdown on illegal foreign exchange companies was able to instill confidence in the market, allowing for the supply of goods to stabilise.

Data from the finance ministry show that the long-term inflation rate will sit close to approximately seven percent in the upcoming half of the fiscal year. This is likely to create an environment that will assist business growth.

The reasoning behind this is that high inflation rates erode customer purchasing power, leaving consumers to allocate their funds to more essential goods and services.

Furthermore, as inflation peaked at approximately 29 percent in 2023, businesses had to make the tough decision of either raising prices to maintain profit margins or to keep prices unchanged while absorbing the difference. The latter practice, while helpful in retaining customers, results in smaller profit margins.

However, experts predict that low inflation rates, coupled with declining policy rates, can bolster economic growth. Businesses and consumers will increase their expenditures, resulting in a rise in aggregate demand.

Falling inflation rates outline the federal government’s achievements, as this outcome could not have been achieved without fiscal consolidation. The State Bank of Pakistan (SBP) should also be credited for controlling the rate of inflation as well.

This is because the SBP raised the interest rate to about 22 percent, easing the inflationary pressures in the economy. Funds previously used for consumption purposes were diverted to savings accounts in an attempt to capitalise from the high interest rates in the economy.

This allowed the inflation rate to decline to a more manageable 7.2 percent in the first half of FY 2024-25. Rising interest rates also brought vast amounts of foreign currency into Pakistan, as foreign investors purchased local treasury bills to benefit from their high profit rates. This helped stabilise the exchange rate as well.

However, the SBP has slashed interest rates over the past six and a half months to boost investment levels once again. Reports have revealed, however, that even falling interest rates have not derailed the downward trajectory of inflation rates.