Global Rice News

Pakistan’s Economy Achieves Stability Amidst Challenges

The economic indicators in Pakistan can be interpreted in different ways, depending on the narrative one wishes to convey. While the current account deficit has reached its lowest point since early 2015, textile exports have shown a decline over the past 18 months. So, which aspect of the economy should we focus on? It ultimately depends on the perspective we seek.

For those tired of doom and gloom predictions about Pakistan’s economy, the current account numbers offer a glimmer of hope. The recent data confirms that fears of a balance of payment crisis have subsided. The foreign exchange reserves of the central bank have increased significantly over the last ten months, making previous concerns about Pakistan’s debt obligations seem almost laughable in hindsight. However, a more in-depth analysis reveals potential vulnerabilities.

The economic stability achieved in the past six to ten months rests on two pillars: the stabilization of the exchange rate since September 2023 and the outstanding performance of the food exports segment. If either of these pillars falters, the entire edifice could crumble despite the optimistic projections. Skeptics question the reasons behind a stable exchange rate when exports are stagnant. Moreover, the entry of Indian rice exports next quarter may disrupt the exceptional growth in food exports.

It’s worth noting that Pakistan’s food exports doubled between August and December 2023 and currently stand at 51 percent higher than the previous year. However, this growth is primarily driven by the export of primary commodities such as rice, sesame, and corn. Any adverse changes in global prices or weather conditions could quickly revert these exports to their previous levels. Furthermore, exporters can only sustain unfavorable exchange rate movements for a limited period, as observed in the case of corn and sesame. The surge in rice exports is primarily due to India’s temporary ban on rice exports, aimed at curbing food inflation ahead of the 2024 general elections.

Now, let’s shift our focus to textile exports, which are at a standstill and unlikely to rebound without addressing the issue of energy tariffs. Despite claims that the industry exports have bottomed out and will only see growth from here on, the trends in export bill discounting prove otherwise. Bill purchases are at their lowest level since the pandemic on a 12-month rolling basis. While there has been some recovery since August 2023 when the exchange rate hit rock bottom, this growth has plateaued. It suggests that the gains from currency stability have been exhausted. It is a misconception to believe that agricultural exports can compensate for the decline in textile exports.

So, what does the macroeconomic outlook for Pakistan look like? It depends on the question we ask. Has macroeconomic stabilization on the external front been achieved? Yes. Will Pakistan default on its external obligations in the near future? Most certainly not. However, if the question shifts to whether exports are on solid footing, the answer is no. Additionally, Pakistan is not prepared to withstand external shocks, such as a war in the Middle East, a rise in oil prices, or capital flight to safe havens.

The members of the monetary policy committee must carefully consider these questions before declaring “Mission Accomplished” next week.

For the original article, visit the Source.

**Source**: [BRecorder](https://www.brecorder.com){:target=”_blank” rel=”nofollow”}