‘Economic outlook dims as prosperity index falls 5pc’

ISLAMABAD: Pakistan Prosperity Index (PPI) dropped 5.2 percent, revealing economy hit a bump amid rising inflation and falling factory output, a study said on Monday.

The study was released by Policy Research Institute of Market Economy (PRIME), which publishes monthly PPI report with a lag of two months based on the availability of required data, the current report comprises data from August 2020 to July 2021. PPI is an agglomeration of trade volume, lending to private sector, purchasing power and manufacturing output indices.

The crux of the report is that overall economic outlook, as measured by PPI, was currently depicting a declining trend and was in contrast to government’s growth agenda.

The economic performance was not encouraging and it laid bare several underlying issues, the report said. Pakistan’s trade volume increased Rs298 billion year-on-year and decreased Rs182 billion month-on-month owing to a fall in rupee value against dollar and a rise in international commodity prices.

It said depreciation of rupee was making necessary imports expensive, which translates into higher cost of businesses and subsequently, lower manufacturing output.

Large Scale Manufacturing (LSM) declined by 4.91 percent month-on-month, attributable to the intermittent disruptions caused by pandemic and continuous surge in prices.

Out of 15 large scale industries, 10 showed growths less than 1 percent, auto industry showed growth greater than 2 percent, while four industries posted negative growth.

The prevalent high levels of inflation are because of the hike in food and energy prices and currency devaluation.

It added that there was a dire need to curb the inflationary pressure by augmenting productivity and output, as this would not only improve the purchasing power/real incomes but also reduce the input cost of LSM.

Moreover, purchasing power shrank as the year-on-year inflation reached 8.4 percent, while month-on-month it clocked in at 1.3 percent, an illustration of fall in purchasing power. Instead of distorting markets through price controls, addressing the supply side shocks of basic food items is imperative to lower food inflation, which is the main cause of rising overall inflation in the economy, the study argued.

The supply side shocks call for more liberal trade measures and elimination of state intervention in the market, the report advises.

The report stressed that prudent economic planning was needed to ensure uninterrupted provision of LNG (liquefied natural gas) to the manufacturing sector for higher yield.

The private sector borrowing from banks showed a continuously surged Rs177 billion year-on-year and Rs17.8 billion month-on-month. It is mostly because of lower cost of borrowing and a reduction in the budget deficit, which has reduced the government’s borrowing needs from the commercial banks thus reducing the crowding out effect.