Category: Business

Pakistan is posting signs of economic revival as the State Bank of Pakistan (SBP) has recorded the single largest monthly current account surplus of $1.195 billion.

While experts believe that this spells great news for Pakistan as the inflow of funds could help alleviate macroeconomic pressures, the surplus comes after Pakistan logged consecutive current account deficits in January and February which is not unusual for the cash-strapped country. 

Historically, Pakistan has run large current account deficits, largely because of its trade deficit.

Analysts have chimed in, outlining how an uptick in remittances is to be credited for the large surplus as the country was able to attract a staggering $4.1 billion in monthly remittances in March.

Compared to the corresponding month in the previous year, the surplus stands at $832 million higher as compared to March 2024’s $363 million.

This brings Pakistan’s current account surplus in the first nine months of fiscal year (FY) 2024-25 to a respectable $1.86 billion. According to reports, this is a stark improvement from the $1.65 billion deficit the economy experienced over the same period in FY 2023-24. 

The current account’s health has improved significantly, as it has witnessed a whopping 212.5 percent improvement. Pakistan’s trade deficit has not logged any significant improvements, reportedly worsening instead by 7.1 percent from a year ago to $2.41 billion.

The trade gap has widened on a year-on-year (YoY) basis as import growth has outpaced export growth. In March 2025, imports grew from $5.48 billion to $5.92 billion on a YoY basis which translates into a growth rate of about 8 percent.

Conversely, exports recorded a growth as well, surging to $3.51 billion from their earlier value of $3.23 billion amounting to a growth rate of 8.7 percent. While it might seem as if exports have grown faster, it is important to consider the larger initial value of imports which has caused the gap to widen.

Considering the first nine months of FY 2024-25, the trade deficit has widened by 14.7 percent. This indicates the overwhelming positive impact of remittances on the economy. 

Many believe that remittances will continue to rise as throngs of Pakistani citizens head abroad for better economic prospects. While this could exacerbate the domestic brain drain issue, tackling the issue could dampen the influx of much needed inflows.

The Cabinet Division has revealed plans to slash government expenditures by reducing public posts. According to credible reports, this decision could result in yearly savings of up to Rs 36 billion.

Of the Rs36 billion, approximately Rs7.2 billion will be saved by eliminating the positions of low-ranking grade-1 public servants such as sweepers, peons and gardeners. Authorities revealed the pay scale-wise details of approximately 40,000 positions to the Senate Standing Committee on Finance, which was chaired by Senator Saleem Mandiviwalla. 

Reports suggest that 29 percent of post eliminations were grade-1 – a post with an average salary of approximately 43,000 rupees per month. In contrast, only two positions were binned from the highest pay scale-22, which reportedly led to savings of just 0.05 percent.

This revelation led to the total annual savings value of Rs 36.3 billion coming to light, which could spell good news for the national exchequer. The savings could allow lawmakers to consolidate the cash-strapped economy’s fiscal position. Reports indicate that these posts are either abolished or have been deemed ‘dying’ positions, which means that this decision will not result in major layoffs in the public sector.

According to reports, these posts were mostly vacant already, and public servants still employed in these positions will be temporarily protected from the threat of being laid off. Under the proposed plan, the serving period of daily wagers will not be extended, and no newly inducted public servants will be able to occupy these posts anymore. 

While many consider downsizing to be beneficial for the public sector, the Cabinet Secretary has conceded that the plan’s monetary impact will not be significant. Reports suggest that authorities are moving under the directives of Prime Minister Shehbaz Sharif, who intends to boost efficiency in government departments.

As per the cabinet secretary, reforms are already underway to support Shehbaz Sharif’s rightsizing plan. Directives to abolish the aforementioned posts had come from Islamabad in August 2024 to reduce the staggering number of public servants that were bloating up the bureaucracy.

Reports claim that previous governments have hired vast numbers of employees to curry political support from the general public. However, Shehbaz Sharif’s initiatives have been met by a barrage of criticism, some from his own political allies.

For instance, a senator from PPP (PMLN’s coalition partner) outlined how Shehbaz Sharif “talks about cutting costs” while simultaneously doubling the size of his cabinet.

The federal government has amended the Petroleum Products Ordinance of 1961 to block the possibility of a Rs 10 per litre cut in petroleum prices, credible reports reveal.

In previous price revision periods, the government periodically tacked on increments to the petroleum levy, which eventually surged to Rs 70 per litre on high-speed diesel (HSD) and high-octane blending component (HOBC). This was a legal ceiling beyond which the government could not raise levies, which is why an ordinance amendment was required.

Prior to the aforementioned developments, many analysts and experts alike believed that prices of petroleum products would decline substantially. This is because petrol prices have reportedly recorded a drop of $6 per barrel while HSD logged a more conservative fall of $5 per barrel in the international market over the past fortnight.

Citing environmental issues, the federal government has decided that fuel prices should not drop further, as it is likely to increase the demand for private transportation, which could increase national carbon emission levels.

Moreover, higher demand could have resulted in larger petroleum import orders, possibly exacerbating the strain on the trade deficit. This would have spelt bad news for cash-strapped Pakistan, which has a measly $10.699 billion in foreign exchange reserves at its disposal.

However, the general public will not witness any fall in domestic petroleum product prices as they remain unchanged. The ex-depot price of petrol will remain undisturbed for the upcoming fortnight at Rs 254.63 per litre.

Conversely, the price of HSD will remain Rs 258.64 per litre. Meanwhile, as domestic prices remain undisturbed, government revenues from one litre of petrol and diesel have surged to approximately Rs 97 per litre.

Given how petroleum products face inelastic demand, revenues from the additional levy could boost Islamabad’s revenue, allowing the cash-strapped economy to consolidate its fiscal position. 

Prime Minister Shehbaz Sharif has revealed that proceeds from the levy will be utilised to fund infrastructure projects, primarily road construction, in Balochistan and Sindh. Concerningly, reports have indicated that Shehbaz Sharif could have made this move to secure the ‘political’ backing of coalition partners. 

According to reports, the federal government has also made a commitment with the International Monetary Fund (IMF) to levy a Rs 5 per litre carbon tax under the $1.3 billion Resilience and Sustainability Facility program.

Finance Minister Muhammad Aurangzeb is set to participate in the International Monetary Fund (IMF) and World Bank’s (WB) 2025 spring meetings held in Washington, United States (US). As per credible reports, Aurangzeb’s visit may also help address concerns surrounding Donald Trump’s 29 percent reciprocal tariffs against Pakistan.

Reports seem to back Pakistan’s intention to discuss the US’s trade restrictions with the Trump administration. While the trade war escalates between the US and China, Pakistan seeks to resolve the issue amicably.

A list of 75 countries, including Pakistan, have decided to respond to US tariffs by engaging in negotiations. Muhammad Aurangzeb is slated to hold meetings with key financial institutions to go over the impact of the devastating tariffs on Pakistan’s economy.

The IMF and WB are expected to provide Pakistan with a framework to deal with the tariffs, as both international lenders play a pivotal role in forming Pakistan’s macroeconomic policies. Islamabad often has to look towards the IMF for their nod before making any major changes.

A recent report conducted by the Pakistan Institute of Development Economics (PIDE) revealed that US tariffs could result in Pakistan experiencing a foreign exchange inflow reduction of approximately $1.4 billion.  Moreover, a spike in the domestic unemployment rate is possible as PIDE projects that half a million workers could be fired.

Reports indicate that a slew of central bankers, experts and finance ministers will also take part in the Spring Meetings. While the tariffs remain suspended for 90 days, it would be beneficial for Pakistan to engage with the aforementioned international players and gain trading partners in case the US decides to resume tariffs again.

Diversification in Pakistan’s export destinations is vital, given that its largest single-country export destination is the US. This could help insulate Pakistan’s cash-strapped economy from international adverse shocks. 

However, many believe that it may not be feasible to find trade partners who would be able to plug the gap in exports left by the US. Earlier, analysts speculated that a high-profile delegation from Pakistan could visit Washington after the Spring Meetings conclude to normalize trade relations between both countries.

Prime Minister Shehbaz Sharif’s office has now established that a delegation is slated to visit Washington DC with Commerce Minister Jam Kamal Khan at the helm. Some believe that if Pakistan decreases the tariffs it levies on US imports, the Trump administration could reduce its rate on Pakistan.

In a bid to discourage the purchase of unhealthy foodstuffs and beverages, the Ministry of National Health Services (MNHS) has suggested that a ‘health tax’ be placed on a slew of processed food and drinks. Reports indicate that the tax rate could sit at 20 percent and may be implemented in the fiscal year (FY) 2025-26’s budget. 

Taxes on goods that already have a 20 percent Federal Excise Duty (FED) may witness tax rates up to 40 percent. Bakery items and confectionery products also fall under the umbrella of the proposed health tax.

The MNHS suggests that the health tax on processed goods be raised incrementally until it hits 50 percent by FY 2028-29.  Proceeds from the tax could also assist authorities in consolidating Pakistan’s cash-strapped fiscal position.

Credible reports indicate that the increase in revenues could allow lawmakers to increase public expenditure on health, allowing the general public to benefit from a greater level of governmental provision of healthcare services. 

The health tax could provide citizens with a double benefit as it will reduce the quantity demanded for ultra-processed food and drinks – ultimately reducing the incidence of diabetes and heart diseases. Moreover, individuals consuming harmful processed goods will indirectly foot the medical costs for the general public.

However, companies that manufacture these goods may witness a substantial fall in their sales volume if such a tax is introduced. This could detrimentally impact these firms’ revenues and profit margins. 

As per reports, the FED on certain aerated waters sits at 20 percent. However, recommendations have been made to revise the rate up to 40 percent initially, with a second increment that will bring the rate up to 50 percent by FY 2028-29. For context, aerated water refers to water that has been artificially impregnated with a large amount of gas.

Likewise, the current FED of 20 percent on squashes, flavored water, syrups and sugary fruit juices could be revised up to 50 percent by FY 2028-29. Not all goods have a FED levied upon them. However, a report submitted to the MNHS has recommended that a levy of at least 20 percent be introduced on ultra-processed food products.

Reports reveal that the 20 percent FED could be levied on confectionary products such as chocolates, candies, and chewing gum, to name a few. Bakery items such as sweetened corn flakes, cookies and nuts with sugar could face a 20 percent duty as well.

The tariffs levied against Pakistan by the US call for rapid action by both businesses and the government to scramble to diversify export goods and destinations. A study conducted by the Pakistan Institute of Development Economics (PIDE) has outlined how Donald Trump’s tariffs could result in massive layoffs in the textile, leather, rice, surgical and sporting goods sectors.

The study was conducted by senior research economists at PIDE, including Dr Usman Qadir, Dr Muhammad Zeshan and Dr Shujaat Farooq. These researchers extensively considered the possible effects of the 29 percent reciprocal tariff rate on Pakistani goods entering the US.

However, reports reveal that the tariff rate Pakistan faces is actually significantly higher than 29 percent. Tacking on the 8.6 percent Most Favoured Nation (MFN) duty, the total tariff rate could surge to a staggering 37.6 percent.

This could prove devastating for Pakistani exporters as the aforementioned tariff rates could result in exports shrinking by up to 25 percent. To put the loss into perspective, Pakistan could experience a foreign exchange inflow reduction of approximately $1.4 billion. 

While tariffs are currently suspended, data from the study indicates that if Trump reinstates the tariffs, the domestic textile sector would be hit hardest. Reports suggest that the textile industry alone could cause a spike in the domestic unemployment rate as PIDE projects that half a million workers could be fired. 

PIDE has indicated that the economy could witness a substantial drop in trade-related foreign exchange inflows, which could result in macroeconomic instability. Historically, Pakistan has run a trade deficit against its trading partners, and with US tariffs in place, some believe that the deficit could worsen.  

According to data from credible reports, Pakistan exported goods valued at $5.3 billion to the US in 2024 – A sizable portion of which were textiles. Domestic exporters are slated to lose market share to neighbouring India, which has not been hit as hard by Donald Trump’s levies. 

PIDE has suggested that relevant authorities participate in diplomatic efforts to dampen the effects of the tariffs by possible revisions. Prime Minister Shehbaz Sharif recently authorized a delegation from Pakistan to visit the US and attempt to secure better terms for Pakistan.

Some believe that if Pakistan decreases the tariffs it levies on US imports, the Trump administration could reduce its rate on Pakistan. This could significantly benefit the local textile industry as it imports a large quantity of cotton from the US.

As per reports, Pakistan imported cotton worth $181 million in 2024 to create final goods. If tariffs on the US are reduced, it could ultimately raise the competitiveness of the textile industry and potentially allow the Pakistani delegation to argue for lower reciprocal tariffs.

Islamabad has recommended a new version of the Dasu hydropower project for approval with a staggering price tag of Rs 1.7 trillion. As per credible reports, the new cost represents a meteoric 240 percent rise from initial estimates.

Earlier estimates pegged the total cost at a conservative Rs 479 billion which would have made it the most economical power generation venture. However, with the project’s cost now surging by Rs 1.3 trillion, analysts have pointed out how inefficient the scheme has become after the revision in price.

According to reports, the per unit cost of power has swelled to Rs 8.79, which effectively makes the Dasu Project the most expensive one in the country’s history. With the project requiring $6.2 billion, a large influx of foreign investment and loans will be required to propel the project to the finish line.

An announcement from the Ministry of Planning has revealed that under Minister for Planning Ahsan Iqbal, the Central Development Working Party (CDWP) has decided to take up ‘Stage-I’ of the revised Dasu Hydropower Project. Reports suggest that this project is worth Rs 1.74 trillion and could significantly boost Pakistan’s power generation capacity.

Ahsan Iqbal reportedly expressed concern regarding the colossal 240 percent price increase which had come about because of severe mismanagement and persistent delays. For reference, the project does not even have a chief financial officer for the management of funds. However, Iqbal notably outlined how the previous government was responsible for these issues, effectively clearing the PMLN administration from any blame. 

Nevertheless, he decided to forward details of the scheme to the Executive Committee of the National Economic Council (ECNEC) for approval. The ECNEC meeting will be chaired by Deputy Prime Minister Ishaq Dar and progress on the project will remain suspended until await his approval. 

In 2014, the project was slated to produce power at a per-megawatt cost of just Rs 236 million. The aforementioned figure however has now exploded to Rs 804 million per-megawatt.

Aside from the high cost of power generation, experts have highlighted how a vast array of mega-projects can be completed if funds for the Dasu project are rerouted elsewhere. 

With the project’s price tag reaching $6.7 billion, reports from reputable institutions suggest that the federal government could have laid tracks for the Karachi-Peshawar railway. However, Ahsan Iqbal has outlined the importance of the project to combat water security issues.

The World Bank has provided $517 million for the project and additional funding is likely to be secured from the World Bank too – as government entities remained locked in discussions with the global lender for an additional $1 billion loan package.