The Pakistan Bureau of Statistics (PBS) brought good news for Pakistanis this month, reporting the year-on-year inflation for September at 6.93%, a 44-month low.
It also marked the second consecutive month of single-digit inflation since January 2021. What makes this figure truly impressive is how swiftly the inflation has declined from a historic high of 38% in May 2023, catching even government officials off-guard. The inflation figure saw the country’s real interest rate—the difference between the nominal interest rate and the rate of inflation—jump to a record 10.6%, marking seven months of positive real interest rates, facilitating investment. Experts have sounded caution, however, noting maintaining high real interest rates could threaten debt sustainability by increasing borrowing costs. This opens the path to further cuts to the policy rate in coming rates, which can boost growth and industrialization.
The PBS data shows that, year-on-year, prices for transport and food fell by 7.3% compared to a 3.2% increase in August 2024. Core inflation, excluding food and energy costs, declined to 9.3% in September from 10.2% in August and 18.6% in September 2023. In urban areas, inflation declined to 9.3% from the previous 11.7%, while rural inflation dropped to 3.6% from 6.7%. While inflation was recorded on some commodities, prices generally fell in all areas.
Yet, despite this positive momentum, Pakistan’s economy has yet to achieve the conditions necessary for sustainable growth. The country’s debt burden is still far in excess of its revenues, with experts blaming poor governance and low productivity per capita in comparison with other low to middle-income developing countries as contributing to a balance of payment crisis. Positive momentum on its foreign exchange reserves also bodes well, though care must be taken to ensure imports are not revived to unsustainable levels, erasing the gains of the past two years. The country must also ramp up efforts to secure investment, as traditional allies in the Gulf are increasingly uneasy about supporting Islamabad with economic assistance, and we can ill-afford further loans. For now, the country is on the path to stability, but achieving it requires walking down a long, tough road.