Any significant rise in energy prices may impact improved inflation outlook, says Pakistan central bank

This file photo, posted on August 7, 2023, shows Pakistan’s central bank and State Bank Museum in Karachi. (Photo courtesy: Facebook/SBP)
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Updated 14 May 2024
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Any significant rise in energy prices may impact improved inflation outlook, says Pakistan central bank

  • The bank says it is important for the government to set inflation target range in consultation with it
  • However, its latest report finds gaps in collective and up-to-date understanding of inflation dynamics

KARACHI: Pakistan’s central bank has warned that any significant increase in energy prices may offset the impact of recent positive developments on the inflation outlook, urging the government to set an inflation target range in consultation with it.

The State Bank of Pakistan (SBP) said it had revised its inflation projection range to 23–25 percent for the current fiscal year against the target of 21 percent after the inflation hit all-time high of 38 percent in May last year, and had taken measures during the ongoing high inflationary episode to contain demand pressures and prevent de-anchoring of inflation expectations. 

The central bank cumulatively raised the policy rate by 1,500 basis points during FY22 and FY23 and maintained it at 22 percent as adjustments in energy prices, in the backdrop of longstanding structural issues, continued to impact inflation outturns. As a result of monetary tightening, supported by some fiscal consolidation, lower global commodity prices, and improved domestic crop output, the inflation came down from its peak of 38 percent to 29.7 percent in December 2023, whereas core inflation has also gradually started to decelerate. 

“Any significant increase in administered energy prices may offset the impact of positive developments on inflation outlook,” the central bank warned in its half-yearly report issued on Tuesday.

Higher input costs, increase in indirect taxes, and implementation of upward revision in minimum wage announced in the FY24 budget, alongside the second-round effects of administered prices of food and energy items, were responsible for the persistence in the core inflation during the first half of fiscal year 2023-24 (H1-FY24), according to the report.

“Despite subdued domestic demand and decline in global commodity prices, a combination of lingering structural issues, PKR (Pak Rupee) depreciation compared to H1-FY23, increase in government spending, and supply shocks kept the National CPI inflation at elevated levels,” it read.

The central bank also warned that its 23-25 percent inflation outlook may also be at risk due escalating geopolitical tensions, unfavorable weather conditions, adverse movements in global oil prices, and subsequent external account pressures, saying that it expected inflation to come down to 5–7 percent by September 2025.

To effectively anchor inflationary expectations, the central bank said: “It is important that the government sets the inflation target range in consultation with the SBP — ala the practice of joint agreements between the government and central bank in other countries, such as Canada, India and England.” 

It also necessitates that deviations from planned fiscal policies, including the setting of administrative prices, are neither significant in magnitude nor in timing to avoid affecting monetary policy credibility and stoking long term inflationary expectations, according to the report. 

It is imperative to relax the policy of price administration and to de-cap prices to help increase competition in the medium to long term and thereby lower inflationary pressure. While productivity growth is needed to improve supplies and lower per unit costs, there is also a need to significantly lower the pace of population growth to ease underlying demand pressures in the long term.

“There are gaps in collective and up to date understanding of inflation dynamics in the country,” the bank stated. “Plugging these gaps in understanding requires concerted efforts by academia, government institutions, and policy research institutes alike.”

Pakistan’s macroeconomic conditions somewhat improved during H1-FY24 and real economic activities moderately recovered against the contraction last year, while a $3 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF) helped reduce stress on external account, according to the central bank. Continued tight monetary policy stance and fiscal consolidation are expected to keep domestic demand in check, with modest economic recovery expected in the second half of FY24.

In the backdrop of improvements in business confidence, high frequency demand indicators since November 2023 and prospects for a good wheat production during FY24, the SBP projected real GDP growth in the range of 2-3 percent for the current fiscal year.


Imran Khan’s party doubles down on Islamabad protest as administration bans public gatherings

Updated 18 November 2024
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Imran Khan’s party doubles down on Islamabad protest as administration bans public gatherings

  • District magistrates bans gathering of more than five people for next two months
  • Ban comes as Pakistan Tehreek-e-Insaf is planning protest in Islamabad on Nov. 24

ISLAMABAD: The Pakistan Tehreek-e-Insaf party (PTI) of jailed former Prime Minister Imran Khan on Monday urged followers to go ahead with a planned protest march to the federal capital as a two-month ban on public gatherings was imposed in Islamabad by the district magistrate.

The PTI announced last week it would lead a ‘long march’ to the capital on Nov. 24 over alleged rigging in Feb. 8 general elections and to call for the release of political prisoners, including Khan, and in support of the independence of the judiciary.

In a notification dated Nov. 18, the district magistrate imposed a two-month-long ban on the gathering of more than five people in Islamabad, effective immediately. 

“The long march will start from Punjab, Sindh, Balochistan & KP [Khyber Pakhtunkhwa] provinces, Azad Kashmir & Gilgit Baltistan under the provincial leadership of each province, etc., making its way toward the federal capital Islamabad,” the PTI said in a statement, hours after the district magistrate announced the ban.

The party’s recent rallies and marches have been thwarted by similar bans on public gatherings imposed under Section 144 of the Pakistan Penal Code which allows the government to prohibit various forms of political assembly, gatherings, sit-ins, rallies, demonstrations, and other activities for a specified period.

Khan has been in jail since August 2023 and has faced dozens of cases since he was removed as prime minister in 2022 after which he launched a protest movement against a coalition of his rivals led by current Prime Minister Shehbaz Sharif and backed by the all-powerful military, which denies interfering in politics. 

Khan says cases against him, which disqualified him from contesting the February elections, are politically motivated. His party has held several protest rallies in recent months to build public pressure for its leader’s release.

With regards to the latest protest, the PTI’s first demand is a rollback of recent constitutional amendments like the 26th amendment that the PTI says is an attempt to curtail the independence of the senior judiciary. It is also calling for the release of party leaders and supporters and a return of what it describes as a “stolen mandate” after Feb. 8 general elections.

Pakistan’s government denies being unfair in its treatment of Khan and his party and the election commission rejects allegations the elections were rigged. The government also says recent amendments related to the judiciary are meant to smooth out its functioning and tackle a backlog of cases.

“The purpose of this peaceful demonstration by PTI, is to stage a peaceful protest demanding, the restoration of the judiciary, the return of mandate stolen ... and the release of political prisoners under custody without trial,” the PTI statement said. 

Earlier on Monday, the district magistrate, without naming the PTI, said processions being planned in the capital “can disrupt public place and tranquility and keeping in view the current law & order and security environment, it is necessary to control such types of illegal activities which present a threat to public peace, tranquility and maintenance of law & order.”

He added that the demonstrations would cause “public annoyance or injury, endanger human life and safety, pose a threat to public property, and may lead to a riot or an affray including sectarian riot within the revenue/territorial limits of district Islamabad.”

In light of this, all gatherings of more than five people are banned in the capital, the notification said:

“This order shall come into force with immediate effect and shall remain in force for a period of TWO MONTHS.” 


Seven policemen abducted by armed gunmen in northwest Pakistan amid militancy surge 

Updated 50 min 7 sec ago
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Seven policemen abducted by armed gunmen in northwest Pakistan amid militancy surge 

  • Police data shows 75 police officials have been killed in Khyber Pakhtunkhwa province this year
  • Pakistan blames surge in militancy on neighboring Afghanistan whose Taliban rulers deny the accusations 

PESHAWAR: Unidentified gunmen abducted seven policemen from a check post on Monday in Pakistan’s northwestern district of Bannu, police said, as the Khyber Pakhtunkhwa province battles a rise in militant attacks on cops and other government officials. 

Pakistan’s northwest has seen a rise in militant attacks in recent months, which Islamabad says are mostly carried out by Afghan nationals and their facilitators and by Tehreek-e Taliban Pakistan (TTP) and other militant groups who cross over into Pakistan using safe haven in Afghanistan. 

The Taliban government in Kabul says Pakistan’s security challenges are a domestic issue and cannot be blamed on the neighbor.

Police data shows 75 policemen have been killed and 113 injured in militant attacks and targeted assassinations in 2024 in Khyber Pakhtunkhwa province, which borders Afghanistan.

“Armed men abducted seven police personnel from the Rocha checkpoint in the jurisdiction of Utmanzai Police Station in Bannu district,” District Police Officer (DPO) Zia Uddin told Arab News, saying up to 40 gunmen first surrounded the checkpoint in the mountainous area of Sub-Division Wazir on Monday evening.

“The armed men abducted seven police personnel from the Rocha checkpoint in the jurisdiction of Utmanzai Police Station in Bannu district.”

The militants also took away all weapons and equipment at the checkpoint. 

 “Four police personnel escaped as they were not present at the location at the time,” the DPO added. 

The Pakistani government and security officials have said repeatedly that such attacks have risen in recent months, many of them claimed by the TTP and launched from Afghan soil.

The TTP is separate from the Afghan Taliban movement, but pledges loyalty to the Islamist group that now rules Afghanistan after US-led international forces withdrew in 2021.

Islamabad says TTP uses Afghanistan as a base and says the ruling Taliban administration has provided safe havens to the group close to the border. The Taliban deny this.


65-year-old man leading gang of ‘rickshaw dacoits’ busted in Pakistan’s Karachi

Updated 18 November 2024
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65-year-old man leading gang of ‘rickshaw dacoits’ busted in Pakistan’s Karachi

  • Police say Rahim Bux’s gang lured traders into rickshaws or followed them on three-wheelers and robbed them at gunpoint
  • Bux was released from prison in 2018 after serving a 20-year sentence for a $25,000 bank heist in 1998

KARACHI: Police in the southern Pakistani province of Sindh said on Monday they had arrested a 65-year-old man accused of leading a gang of dacoits who were using rickshaws to rob traders in the provincial capital of Karachi.

Karachi is Pakistan’s largest and richest city, home to the central bank and stock exchange, a major port, and some of the most violent areas of the country. Many of its sprawling slums are split along ethnic lines, and overrun by armed groups that have carved the city into spheres of influence. Driveby shootings and muggings are a daily occurrence in the teeming metropolis of over 20 million people, despite a military-backed crackdown launched in 2013 that brought down crime rates for a few years. 

Speaking to Arab News on Monday, police official Mumtaz Khan Marwat said Rahim Bux, released from prison in 2018 after serving a 20-year sentence for a Rs7 million ($25,000) bank heist in 1998, had formed the “Rickshaw Gang” after completing his jail term. The operation in which Bux was arrested in 1998 resulted in the deaths of two policemen and his accomplices and injured Bux, who then spent two decades in prison.

“Bux formed his gang of four after his release from jail and started looting citizens. We arrested all gang members last night [Sunday] after a tip-off,” Marwat, who heads the Shah Latif Town police station, said. 

The gang would target traders leaving cattle markets with large sums of cash, luring victims into their rickshaws or following them on the three-wheelers and then robbing them at gunpoint.

“Bux, the team leader, would wait at a destination to supervise the robberies and then flee in the same rickshaw with his men,” Ihsanullah Khan, another police official who is interrogating the suspects, told Arab News.

“Bux is a hardened criminal with several cases against him in the Karachi and Larkana divisions.” 

Nearly 100 people have been killed during armed muggings in Karachi this year, according to police figures. 


Over 50,000 power looms shut in Pakistan in two years, leaving thousands jobless

Updated 18 November 2024
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Over 50,000 power looms shut in Pakistan in two years, leaving thousands jobless

  • Industrial stakeholder says the closure owes to soaring power tariffs, raising the cost of doing business
  • Punjab administration’s economic adviser vows to look into the issue to find viable solution to problem

ISLAMABAD: Tens of thousands of workers have lost their jobs as over 50,000 power looms shut down in Pakistan’s Faisalabad district over two years due to soaring electricity prices, an industry stakeholder said over the weekend, with officials pledging to explore viable solutions.

Power looms are mechanized devices that automate the weaving process. Faisalabad, located in Pakistan’s populous Punjab province, is the hub of the country’s textile industry, housing 125,000 power looms in its industrial zone.

The sector produces nearly 91% of Pakistan’s grey cloth, which also sells well in international market.

“In the last two years, over 200,000 workers have been rendered jobless in Faisalabad after the closure of some 50,000 power looms,” Saeed Ahmad, deputy secretary of the All Pakistan Cotton Power Looms Association, told Arab News. “The remaining industry is also on the verge of closure due to inefficient government policies.”

Ahmad said the hike in electricity prices over the last two years was the major factor behind the closures, as the per-unit cost of power had risen from Rs19 to Rs55, along with additional taxes.

“This is a small industry, and people cannot afford to pay millions in electricity bills each month,” he said, adding that the additional cost of doing business, such as higher interest rates, had also reached double digits.

Ahmad noted that while some power loom owners had switched to solar energy to run their industrial units, the option was prohibitively expensive for most.

“If you have to run the power loom, you cannot disconnect from the national grid because the solar station won’t work on cloudy days,” he explained.

Ahmad urged the government to lower electricity prices and provide loans to the industry to keep it operational.

“The power loom industry has been contributing to the national economy through textile exports, but the government is not willing to provide incentives to keep it afloat,” he said.

Speaking to Arab News, Javed Iqbal Malik, senior economic adviser to Punjab’s Industries, Commerce, Investment and Skills Development Department, acknowledged that the cost of doing business has increased due to a spike in electricity tariffs.

“I am not aware of the exact scale of the closure of power looms in Faisalabad, but one thing is for sure that the cost of doing business has increased and many businesses, including manufacturing, have become uneconomical, he said.

“We will look into the issue and discuss it with the industry to find out some viable solutions as this industry is vital for textile exports and economy,” he added.

Khurram Shahzad, a senior economist, said Pakistan’s economy had faced significant hardships in the last two years as the country narrowly avoided sovereign debt default, which also impacted the manufacturing sector.

“The manufacturing sector, including the power looms industry, has been affected by three factors: the interest rate, energy costs and taxes, all of which hit record highs in the last two years,” he told Arab News.

Shahzad noted that while the interest rate had declined in recent months, it remained in double digits.

He added that the government was promising to lower electricity tariffs to ease the cost of doing business.

“Taxes on the formal sector are expected to be reduced in the coming months with the stabilization of the economy, and this will help the manufacturing sector grow,” he said.


Pakistan compares failed PIA privatization bid to Air India, saying it sold on fifth attempt

Updated 18 November 2024
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Pakistan compares failed PIA privatization bid to Air India, saying it sold on fifth attempt

  • It took PM Narendra Modi administration more than four years to find a buyer for Air India in 2021
  • PIA sale hit a snag last month when final bidding round attracted just one bid of $36 million 

ISLAMABAD: Pakistan’s privatization chief Abdul Aleem Khan on Monday defended a recent failed bid to sell loss-making national carrier, Pakistan International Airlines by comparing it to Air India, which was sold after multiple attempts.

Cash-strapped Pakistan was looking to offload a 51-100 percent stake in debt-ridden PIA to raise funds and reform state-owned enterprises as envisaged under a $7 billion International Monetary Fund program approved in September. The process, however, hit a snag last month when the final bidding round attracted just one bid of Rs10 billion ($36 million) for a 60 percent stake in the national flag carrier.

PIA’s existing liabilities stand at approximately Rs250 billion ($896 million).

“Khan compared PIA’s situation to Air India, which had undergone multiple failed privatization attempts before ultimately succeeding on its fifth attempt,” the privatization ministry said in a statement, quoting Khan’s remarks at a meeting of the Senate Standing Committee on Privatization on Monday. 

“Khan expressed hope that Pakistan’s national airline could follow a similar path but underscored the need for thorough reforms.”

It took Prime Minister Narendra Modi’s administration more than four years to find a buyer for Air India in 2021. For a decade before that, the Indian government had spent about $15 billion of taxpayer money on the airline, famous for its Maharaja mascot.

The Pakistan government had pre-qualified six groups for PIA’s privatization process in June, but only real-estate development company Blue World City participated in the bidding process in October, placing a bid that was below the government-set minimum price of Rs85 billion ($304 million). 

The disposal of PIA is a step former governments have steered away from, as it has been highly unpopular given the number of layoffs that would likely result from it.

Other concerns raised by potential bidders for the PIA stake included inconsistent government communication, unattractive terms and taxes on the sector, and the flag carrier’s legacy issues and reputation.

Khan also highlighted hurdles in the privatization process during Monday’s meeting, saying it would require a “fresh approach and big-hearted decisions.”

“The first consultant engaged for the task was deemed unsatisfactory, and a new consultant would be hired to help move the process forward,” Khan told the committee, adding that privatization could only take place if PIA’s financial and operational situation was “clean and attractive to potential buyers.”

“We need to ensure that PIA is clean and profitable before privatization can proceed. Without addressing these fundamental issues, investors will not show interest,” Khan said.

Losses running into billions of dollars in the power and gas sector, the main hole in the economy, were also discussed.

“The privatization process for the first three Discos [power distribution companies] is expected to be completed by January 31, 2025,” the statement said, with Khan acknowledging that privatizing Discos would be even more challenging than PIA.