Lately, there has been a surge of excitement in the real estate market, particularly in upscale urban areas. The initial wave of optimism stems from discussions about a potential real estate package and the formation of a task force to address the sector’s challenges. For the past two years, the real estate market has been nearly stagnant, dragging down the construction industry along with it. Opinions on reviving the sector through fiscal and monetary incentives are deeply divided. One camp is highly cautious, fearing that a resurgence in real estate could push the country toward a full-blown macroeconomic crisis while reopening channels for black money to flow into the system. They argue that past housing scheme scams could resurface, allowing big tycoons to reap the benefits while leaving ordinary investors stranded. On the other hand, proponents of real estate revival view it as a key driver of economic growth. They emphasize its ability to generate employment, address critical housing shortages, and sustain 40-50 allied industries. This group advocates for broad incentives to stimulate the sector. The reality, however, lies somewhere in between.

The headline inflation nosedived to 2.4 percent—the lowest level since October 2015—down from 28.3 percent last year. The decline is partly attributed to the high base effect and partly to a lower monthly increase, which averaged 0.3 percent over the last 12 months compared to 2.2 percent in the previous 12 months. Thus, inflation is surely and truly falling. However, prices on an aggregate basis are still rising from a higher base, offering little to no relief for the masses. The decline is primarily attributed to falling food prices (just as they were a key driver during the sharp increase) Another notable area of lower inflation is energy—electricity and fuel prices have declined by 15.6 percent and 2.5 percent However, the decline in inflation is not uniform across all sectors. Apart from food and energy, some pressure points remain—such as clothing and footwear, health, education, and miscellaneous items—where inflation remains in double digits.

The complexities of the energy sector are not easy to resolve. The IMF set a structural benchmark to end gas supply to Captive Power Plants (CPPs) with the objective of forcing them to transition to the national grid. This was necessary as grid consumption was declining while supply was increasing. However, there was a problem: not all CPP users have access to the grid, and even those who do may face reliability issues. Additionally, some CPP operators claim their efficiency is higher than the most advanced plants on the grid, yet they have been reluctant to allow government audits to verify these claims. Due to strong opposition from CPP operators, the government renegotiated with the IMF to increase gas prices for CPPs rather than cutting off supply entirely. The aim was to incentivize them to transition to the grid. This policy shift is a step in the right direction and has long been advocated in this space. With higher gas prices, truly efficient operators can continue, while those lacking grid access may start investing in the necessary infrastructure while still having access to gas. Meanwhile, another factor is causing concern for Sui gas companies: third-party access to the gas system and imported RLNG.

Follow us With economic stabilization on the horizon, pressure from employers, particularly from white-collar urban workers, is mounting for wage increases. Wages are likely to rise in 2025, which will stimulate overall demand, with its effects becoming apparent shortly thereafter. This could trigger a wage-price spiral, potentially bringing slight inflationary pressures alongside modest economic growth. In recent years, bargaining power has largely rested with employers, leaving employees at a disadvantage. Inflation soared while wages stagnated, eroding real incomes. Higher taxation on salaried and self-employed individuals further reduced disposable incomes, prompting some professionals to leave the country while others adjusted their lifestyles. Now, the tide is turning. Demand is picking up in certain sectors, and employers are struggling to find or retain the right talent, as a significant portion of the employable workforce has sought better opportunities abroad. Bargaining power is shifting to employees, making wage increases inevitable—especially in the finance and ICT sectors.

@abay_insaan_ban He was making money. Now it's time to scare you all - pressure on PKR and ghost appearances are correlated

The import pressure is gradually increasing. There is no immediate strain on the currency per se, but demand is picking up. The Real Effective Exchange Rate (REER) is also creeping upward and is likely to cross the 105 mark in the next couple of months. Imports (on a shipment basis) crossed the $5 billion mark in December 2024, the first time since December 2022. An upward trend in oil imports is evident. In December 2024, the quantity of oil imports reached its highest level since June 2022, and the November 2024 imports were also significantly higher than in previous months. These indicators suggest rising demand, possibly driven by a shift from smuggling via Iran to formal banking channels. Whatever the reason, the pressure on payments due to the higher quantum of imports is expected to be reflected in the interbank market, as payments are typically made with a lag of 1-2 months. Reviewing these numbers, BR Research reached out to treasury offices in commercial banks, and most reported facing some payment pressure. However, the majority believe there is no immediate pressure on the currency to depreciate.

The first half of the fiscal year presented a favorable macroeconomic picture, primarily due to falling inflation and a positive balance of payments. A key highlight was the posting of a current account surplus of $1.2 billion in 1HFY25, compared to a deficit of $1.4 billion during the same period last year. This, coupled with positive capital and financial accounts, enabled the SBP to increase its foreign exchange reserves by $2.3 billion to $11.7 billion, covering nearly three months of imports at the current low demand. The challenge, however, lies in financing growing imports once economic growth gains momentum, which is likely to occur within the next six months.

Lack of domestic demand amid high real positive rates makes a case for further rate cuts. However, continuing an aggressive cutting stance is not advisable. The SBP could consider a 100bps cut, while a 200bps reduction cannot be entirely ruled out. The key element is to pause after another 200bps cut to observe the impact of reducing the policy rate by half.

LSM is down by 4% in Nov 24, despite 89% growth in the automobile sector.

The PIA privatisation efforts are back, and the chances of the deal moving forward this time are high. The previous round was spearheaded by the political leadership of the ruling party, PML-N, but now the establishment is in control. In the failed attempt, multiple conditions were demanded by potential bidders, and a few of them are now being addressed. These, along with the opening of the European route, are encouraging investors to seriously consider buying an ailing airline. The success of PIA’s privatization hinges on the financial structure of the deal. The government should not prioritize generating immediate revenue through the sale but rather focus on long-term cash flows. The goal is to offload a bleeding asset so the fiscally strained government no longer has to subsidise it. If the privatized entity becomes profitable or expands its business, the government will benefit through tax revenues. Additionally, there could be forex savings if PIA captures business from foreign airlines. At present, two consortiums of reputable local business groups are showing strong interest. One consists of several IPP owners, including those who faced tough negotiations recently. The other group, referred to as the Pakistan Corporate Consortium, comprises members from across the country, including top exporters who did not participate in the previous round. This consortium is led by Bashir Janmohammad, with Arif Habib also playing a role. The inclusion of the Fauji Foundation brings diversification and versatility, which are essential.

@arifanoor72 @FaseehMangi @MahimMaher Cuz of input and output adjustments

@FaseehMangi And Kfc , McDonald's, etc. They do input output adjustments and have exemptions from this in Punjab, too, since the incentive was introduced in 2019.

The star economic performer in the last two years is the State Bank of Pakistan. The central bank’s foreign reserves are up by $8.8 billion in the last twenty-three months (from February 2023 to December 2024), and its forward liabilities are reduced by $2.6 billion at the same time. On a net basis, the increase is at a whopping $11.4 billion, and that largely explains the economic stability that has been achieved. This would not have been possible without SBP buying from the interbank market. SBP Governor reportedly said that SBP bought $9 billion (on a net basis) from the interbank market in 2024 (the last twelve months), and within it around half the amount is purchased in the last six months. As per the published data, SBP bought $1.9 billion in three months (June to August 2024). Some analysts are speculating that if SBP had not bought the dollars from the interbank market, the PKR could have appreciated 240 against the USD. Yes, there could be some room for currency appreciation if the SBP was not buying. However, we cannot conduct the analysis in isolation, given the presence of other variables that directly influence the currency value. Therefore, if SBP hadn’t been purchasing dollars, there could have been a surplus in the interbank market, potentially leading to a brief appreciation of the currency. And banks could have used the amount to finance imports. At the same time, SBP reserves might have been falling, and that could have triggered another panic button. It’s best to avoid it, and the credit goes to SBP for not letting this happen.

The Uraan Pakistan seems more like a wish list than a practical roadmap, listing ambitious growth targets without detailing how to achieve them. This is not the first time such lofty plans have been introduced. In 2010 and again in 2015, similar aspirations were announced, with exports expected to reach $150 billion by 2025. Now, the aim is to transform Pakistan into a $3 trillion economy by 2047. As the saying goes, if wishes were horses, beggars would ride. Yet, beggars cannot be choosers. The critical question remains: how can Pakistan reconcile the Uraan goals with the constraints of the IMF framework? Skepticism is already brewing among experts in DC about Pakistan’s ability to stay within the IMF programme without adhering to its stringent benchmarks—especially as global economic dynamics have shifted. While the IMF has shown some leniency recently, this cannot be counted on indefinitely.

Policy clarity & timely approvals are vital for utility success. Uncertainty at top level impacts consumer trust & operational efficiency. Transparent, prompt decisions are critical to ensure better service delivery & sector stability. @akleghari

The downward journey of inflation continues, as it is recorded at 4.1 percent in December 2024 – the lowest reading since March 2018. The high base effect is very much in play. The food prices are up only by 0.3 percent YoY – and the rural food index reading is in fact less than the same month last year. 1HFY25, headline inflation averaged 7.2 percent as compared to 28.8 percent in the same period last year. The inflation decline in the 1HFY25 is not merely attributed to the high base effect, as the average month-on-month increase in the last six months stood at 0.6 percent versus 1.8 percent in the same period last year. Thus, the decline in the monthly increase is three times versus the yearly increase fall of four times. The question is about the outlook for inflation and its impact on the interest rates which are already down by 900 bps from the peak in just six months. Well, this decline will generate some demand – usually the impact will be seen with a lag of 6-18 months and may have some upward pressure on inflation. Then the impact of a high base is going to dilute, as inflation may hover around 8-10 percent in the April to June quarter. SBP should take notice of these and check the monetary easing going forward. It should not give too much heed to the finance minister and deputy prime minister who wish to get the interest rates in single digits. The central bank should exercise its independence and focus on keeping inflation in the band of 5-7 percent.

The GDP provisionally grew by a meager 0.92 percent in the 1QFY25. The figures have a flavor of Dar’s recipe where the sectors falling in the informal economy are growing higher than those where there is more formality and have published numbers. If the Pakistan economy grows at 3 percent (an optimistic target) in FY25, its three-year rolling average growth would be at 1.8 percent – the lowest since FY52. This sums up the stability mantra where the inflation and interest rates are falling due to suppression in the demand while the growth and employment opportunities are simply missing. The worst performance is in the important crops and the report from rural communities is bad where the deterioration in the farm income has a widespread impact on the economic demand from the rural sector and that is adversely impacting the manufacturing and services sector.

It is with deep gratitude, respect and fondness that I recall the leadership, vision and strong work ethics of Mr. Arshad A. Zuberi, who sincerely embodied the values that are a hallmark of our esteemed organization. Thank you, sir, for your guidance and kindness. May your soul rest in peace. He was a mentor, not just a “boss”. An encyclopedia on the economic and business history of the country, this was his chosen field because of his passion and dedication to the cause. He carried with fortitude the flame set afire by his esteemed father, having been trained by the latter on the principles and values of economics, as well as journalism, since his student days. The legacy of becoming the nation’s leading economics daily is steeped in the inherited work ethics and vision of the Senior and Sons- not surprising - since the former was a close associate of the great Quaid.

The PKR has been slightly appreciating for the past fifteen months, and it’s hovering around 277-278 levels against the USD for the last nine months. The inflows have remained in surplus in the past few months, which is evident from the current account posting a surplus of $944 million in 5MFY25 and SBP buying $1.9 billion from the interbank market in three months from June to August 2024. Therefore, SBP reserves are up to $12.1 billion from $9.3 billion in the fiscal year to date. However, there are early indications of some unease, which may warrant a marginal currency depreciation. A number of treasury officers from large banks echo these sentiments, while the SBP appears comfortable due to the improved inflows. At the same time, there is pressure building up from exporters who are losing competitiveness due to the recent depreciation of regional currencies. “We have orders, but our margins are squeezing’, summed up by a large textile exporter. “They have no choice but to depreciate the currency,” candidly put by a treasury head of a big bank. “You cannot have the best of both worlds; if interest is kept low, the currency has to adjust “, he added. SBP must be cognizant of these facts. However, it may be worrying that if PKR changes direction, the speculation may start. However, without timely actions, this might be a reality at some point. Thus, SBP should improve its communication and let the currency adjust without creating panic.

The government has announced a winter package of reduced power rates for three months to lure higher consumption of electricity. However, Lahore Coffee Shops do not show interest. They are rather saving on heating – as against the usual practice of overheating in the previous seasons. Either the government is not marketing the package enough, or the package is not lucrative enough