Profit E-Magazine Issue 226

By Abdullah Niazi and Shahab Omer

Something is rotten in the state of Pakistan’s print media industry. Over the course of the past two years, away from the eyes and ears of those outside the news media, a seismic shift has occurred in one of the most basic aspects of how the newspaper business works: the way publications collect their revenue. That’s right, not how they make their money, but simply how they collect it.

This is a story of bad business practices, wilful corruption in government departments, and a culture of kickbacks, favours, strong-arming and internal scheming and bickering that has brought an already embattled industry to its knees. At the core of it is a fundamental problem that journalists and media houses all over the world are facing more than ever — is it possible to ethically print the news and make money along the way?

In today’s day and age, the print media has very few options to monetise and has turned it into a dying business, leaving advertising as its only real source of revenue. This is a problem. It is particularly so in Pakistan, where the biggest advertiser in the news media is the government. The federal and provincial governments both regularly launch marketing campaigns for different initiatives that they are working on. As part of those campaigns, they send advertisements in different newspapers. This is where our story begins. Because behind these ads, their placement, their payments there is an intricate web of middle-men, delayed payments, forced discounts, and internal politics that rule the roost.

There are four central characters. The first is the government, which both is the biggest advertiser and holds the purse strings. The second are the advertising agencies. These are the middle-men that the government hires to get their ads placed in different papers. And finally, there are the publications themselves. They are represented by two organisations: The All Pakistan Newspaper Society (APNS) and the Council of Pakistan Newspaper Editors (CPNE).

The payments landscape

People don’t consume news the way they used to. Up until the turn of the century, printed newspapers and magazines were a major source of how people stayed informed. Yet from the mid-2000s onwards, the print media was hit by a double-whammy: the advent of private television news channels and the rise of the internet. The story from here on out is a global phenomenon: print media is dying. And with subscriptions in freefall, the only real source of revenue left behind is advertising. For Pakistani newspapers, the major chunk of that is government advertising.

It sounds simple enough. The government wants ads printed for awareness or publicity, and newspapers are a good avenue to place those ads. Except this is where things start to get complex. Let us illustrate with an example, the system that was long in place.

Say the prime minister announces a subsidy package for farmers. He will direct the ministry for food security to get the subsidy underway, and one of the first things the ministry will do is launch a marketing campaign. However, since the ministry neither has the time nor the will to individually seek out media organisations, and then finally send them the cheques. What they do instead is send their marketing campaign to the Press Information Department (PID) or the office of Director General Public Relations (DGPR) when it is the provincial government. The PID then hires an advertising agency which coordinates all of these details with the newspapers and makes sure the ads are printed.

Now here is the real problem. Since the PID gets their cheques from the relevant ministries and departments, they are made out to the advertising agency that was given the contract. The standard practice is and has been that of the amount the government pays for advertising, the publication is given 85% while the agency takes a 15% cut. But since the entire amount was being paid to the agency, they can do what they want with the money and create a lot of roadblocks before releasing it to the newspapers. After receiving the payments from the government, ad agencies would delay and in certain cases entirely fail to pay the newspapers their rightful dues, understandably creating hostilities

Sarmad Ali, president APNS

between the ad agencies and newspapers.

And this is where the corruption kicks in as well. While the government is giving this much commission to the agency, to actually get contracts, agencies have to grease the wheels a little and pay off the necessary bureaucrats and politicians that need to sign off on such things. Just take the example of Midas — once Pakistan’s largest media advertising agency. During an audit of the accounts of Abdul Majeed Shahid, Punjab’s former director-general public relations in the tenure of the Pakistan Muslim League-Quaid (PML-Q) regime, Rs 632.59 million in fake invoices were unearthed, all of which were connected to Midas Pvt Ltd.

Emboldened by this, the advertising agencies began another way of making money. You see, when the PID gives advertising agencies a budget to design and manage a campaign for them, they set a fixed rate for the newspapers. Different newspapers are divided into graded categories A, B, C, D, and E. A fixed rate is set for how much the front page of a category A paper would cost and what the front page of the others would cost. Normally, if there are 10 papers in category B and the government wants ads placed in five category B papers, the agency is supposed to pick the ones best suited for the campaign. Say, for example, Newspaper A has a strong presence in Karachi even though it lags behind in other cities. If the ad is from the Sindh Government, the agency should pick Newspaper A even though Newspaper B might have better overall circulation numbers. However, since the agencies were controlling all of the cashflow, they used this to their advantage and started negotiating with the newspapers off the books.

Say, for example, the government gives an ad agency Rs5 lakh to get an ad placed on the front page of five B category papers. The advertising agency could go to a B category paper and tell them they will give them the ad for Rs3 lakh, and if they do not accept the offer, they will make it to a different paper in the same category. Since there are plenty of

newspapers out there, the competition for ad revenue is tough. Newspapers are regularly strapped for cash, and that means when an offer comes for hard-money they accept it. In this way, agencies have been able to strongarm newspapers into accepting less money and pocketing the forced discounts. The government still officially pays the papers the 85% and the agencies end up making more than their 15% share.

It is a vicious cycle. The government has money to advertise. To get that contract, advertising agencies have to bribe bureaucrats and sometimes even junior government officers. Since they spend money on bribing these officials, they then have to recoup those losses. How do they do that? By shortchanging the newspapers. Since the advertising agency controls all of the money coming in from the government, they have the benefit of hanging on to that money longer than they need to. Because the ad agencies are the ones picking which papers the ads are placed in, they then pit different newspapers against each other to see which one will offer thMedia owners also have employees to pay, and so they cave in.

The system was in place for a long time. But over time, the newspapers also started to get sick of the agencies easily pushing them around. So they decided to hit back. The All Pakistan Newspaper Society (APNS), along with the Council of Pakistan Newspaper Editors (CPNE) started pushing for the government to implement a method by which newspapers would get paid their advertising dues directly by the government instead of having to rely on the advertising agencies. It is a simple solution to a pretty straightforward problem. Or at least that is what one might think.

The 85-15 equation

In April 2020, after persistent lobbying by different newspapers as well as the APNS and the CPNE, the federal government’s Press Information Department (PID) devised a system by which the government

and its various departments and corporations began paying the 85% share directly to publications and only 15% to advertising agencies.

Earlier, the agencies controlled the flow of money. Under this new system, different newspapers send their invoices to PID for verification and it forwards the bills to the various liable government ministries, departments and organisations. So as we mentioned in the earlier example, in the old system an agency would get ads placed in the newspaper and then ask the PID for money. The PID would then request the relevant ministry to release the money to the agency, which would pay the newspapers after this. Under the new system, the agency has been cut out from between the payment that the government makes to publications.

This solves both the problems. If the government pays newspapers directly, then they will no longer face delayed payments from the agencies. And on top of this, the agencies will no longer be able to pocket a portion of the set rate by pitting different newspapers against each other for advertisements. Since the government will be writing cheques to the papers directly, they will be written for the full 85% amount.

The system has been implemented successfully almost all across the country, with Punjab being the only hold-out. Just last week, on the 29th of December 2022, a joint statement issued by the All Pakistan Newspapers Society (APNS), Pakistan Broadcasters Association (PBA) and Council of Pakistan Newspaper Editors (CPNE) urged Punjab Chief Minister Chaudhry Parvez Elahi to implement the 85-15 payment formula of advertising dues as implemented by the federal government and other provincial governments.

“This demand is not a new one. We had also pitched the Nawaz government before the Imran government for the 85/15 rule. We believed that newspapers were the only industry in the world in which the one who got 85 percent of the money had to beg from the one

We are not against this system at all. Many media organisations and bodies had raised this issue because there was a perception amongst newspapers that some advertising agencies take payments from the government and do not pay newspapers on time. In the case of some agencies, this impression may have been correct, but it was by no means the norm

who got only 15 percent. When the newspapers received money through agencies, then the agencies did not pay the newspapers for years, and with the money of the newspapers, they also settled their businesses, built houses and took foreign nationalities, while the payments of the newspapers were delayed”, says Aijaz ul Haq, a member of the CPNE.

“We were looking for a solution to this problem for a long time. Now the situation is that the federal government has a rule of 85/15, and the Khyber Pakhtunkhwa and Sindh government have also adopted it. Punjab also adopted this rule but a regional organisation of Punjab went to court against it. In Punjab, the law of 85/15 has been passed but it is still not being implemented,” he added.

While the new policy was implemented, it has not been without its problems. According to some involved in the matter, while the old system of payments coming through ad agencies was a corrupt and inefficient system it still worked while the new policy was making things worse than before. Others have claimed that the opposition is coming simply because it negatively impacts the bottom lines of these critical voices.

Aijaz ul Haq, member of the CPNE

reason to process payments quicker. Apparently agencies would regularly bribe officers, something they could afford since they were flush with cash and withholding it from the newspapers. Without that incentive, payments have stopped being processed through government offices.

And while the APNS was part of the earlier mentioned joint statement given just a few days ago demanding Punjab implement the 85-15 system, there is reason to believe that the APNS is starting to have serious doubts about the new system. “Ever since the government introduced the 85/15 system, the liability has shifted from agencies to government and we (APNS) have not been in a position to suspend advertising agencies for non-payment or delayed payments. It does not mean that we oppose this system but we believe that it has created frequent delays in payments. Under this system I do not know when my payment will be made by the government, it is like a payable, whenable sort of a system”, says Sarmad Ali, President of the APNS.

able them to settle media invoices on time.”

Ali has a point. While there was corruption, under-the-table money being given, and agencies treating the industry like the wildwest — newspapers were still getting most of the payments. For the large part the corruption worked. It did not work well, since newspapers were regularly shortchanged by advertising agencies. But it worked. The government paid for ads, the newspaper owners were able to pay the bills, and advertising agencies pocketed their commission and then some. At the same time, officials in the agencies and in the government departments responsible for disbursing payments benefited from taking under-the-table cuts.

Here is the thing: on the surface the demand of the 85-15 policy makes complete sense. Publications have faced severe cash flow issues and bad debt because of the advertising agencies. It is the logical solution that if the government paid the newspapers directly, the entire matter would be gone in the snap of a finger.

Except the government operates through the bureaucracy, and the bureaucracy is less the magical snap of a finger and more death by a thousand signatures. You see, with the old system, officers in the PID, DGPR offices and the various government departments had a

Ali denied the implication that the APNS may be turning its back on the system, but did express his reservations. “We are not against this system at all. Many media organisations and bodies had raised this issue because there was a perception amongst newspapers that some advertising agencies take payments from the government and do not pay newspapers on time. In the case of some agencies, this impression may have been correct, but it was by no means the norm. Our concern is with the payment liability passing on from the advertising agency to the government. In this system we do not have control to suspend the defaulting advertising agency.”

“We believe this needs to be improved. If the release order to place the ads is being issued by PID then it must assume its liability as well. This means that PID must be given the authority and autonomy to make payments. We have suggested that funds of the various ministries, departments and corporations should be placed at the disposal of PID to en-

Under the new system, with the PID, DGPR and other government departments entirely lethargic and apathetic towards the payments of newspapers, things have gone down significantly. Newspapers are reporting a slowdown in payments according to the APNS. But there is more to the story. The APNS itself has some vested interests against the 85-15 policy. Largely because as an organisation, the APNS is in the business of accrediting advertising agencies which register with them for a fee and get access to their members. If agencies are out of the picture on the payment front, then what will be the purpose of the APNS?

The CPNE also says that the reservations about the incumbent system have less to do with the technicalities and more to do with the internal dynamics of the APNS. Out of the two bodies, the APNS has been very directly involved in clearing out payment issues between agencies and newspapers. In fact, for years now, this has become one of its primary functions. Under the new system, the APNS is suddenly without much of a job to do. “The role of APNS is that of a clearing house and when they are not able to do their work properly, the members of the society also recognize it but are not able to express it openly”, says Aijaz ul Haq, a member of the CPNE. “There is politicking going on within the organisation and everyone is looking out for their own inter-

Internal politics — was corruption the glue that held it all together?

The role of APNS is that of a clearing house and when they are not able to do their work properly, the members of the society also recognize it but are not able to express it openly”, says Aijaz ul Haq, a member of the CPNE. “There is politicking going on within the organisation and everyone is looking out for their own interests

ests.”

“The impression is correct that there is a propaganda against this rule but there is no truth in this propaganda. Newspapers will only suffer in rolling back this rule, while the need is now to strengthen this system. Our 85% should be received directly and all the organisations should pressurise the government for direct payments. The process of this system is not mature enough and it causes delays in payments. But despite this, the federal government is also paying for advertisements while the payments have been regularised in the Sindh government too”, he concludes.

of different publications. The CPNE, on the other hand, has been more involved in issues such as free speech.

And this actually worked out for both organisations for decades. Until the emergence of new players in the market. During the 1990s, the Express Group backed by the Lakhani family entered with an urdu daily, and launched their product from multiple stations. Over the years, they grew and others also joined the fray. Many more Urdu papers entered the market, and the English press also saw a new entrant in the form of Daily Times in 2002. In fact, in 2010, at a time when the

The newspaper lobby

At the time of partition, Pakistan’s newspaper industry was dominated by three papers — NawaiWaqt founded by Hameed Nizami, Jang founded by Mir Khalil ur Rehman, and the English language daily founded by the Quaid in 1941. There was also at that time The Pakistan Times, which was a left-leaning paper edited by Faiz Ahmad Faiz founded in February 1947 just a few months before partition. Over the years, a number of other Urdu, English, and regional papers also came to the forefront.

For quite a while, along with the radio, newspapers continued to be the main source of news coverage in the country. As such, a big stream of revenue for them was subscriptions — the money that came in from actually selling the paper to homes, offices, airlines, and other places. However, advertising revenue continued to be a major component of profits.

As time went by, however, the biggest issue that these publications faced was censorship. As a result, the All Pakistan Newspapers Society was established in 1953. Almost simultaneously, the CPNE was founded in 1957. The two organisations were formed as representative bodies that would allow publications to band together to fight for important issues like press freedom. At the same time, these organisations also acted as protectors of the business interests of publications — such as lobbying for cheaper import duties on newsprint (the special paper that newspapers are published on) and the provision of advertising payments. Essentially, these bodies function as lobbies for both the moral and financial interests of the print media.

Over time, the role of these organisations changed. In particular, that of the APNS, which evolved into an organisation working almost entirely towards sorting out the issues between publications and advertising agencies. In the 1980s a number of new newspapers were launched, including two english dailies namely The Nation and The News International. Along with them, publications like Pakistan Times, Dawn, The Muslim, were all in operation as well. By the time the flood of cable news channels arrived after 2008, other papers such as Daily Times, Pakistan Today, and the Express Tribune were all in the field. With the entry of these new players, the roles of these two organisations and the dynamics of the newspaper business in Pakistan have drastically changed, with the CPNE now also taking a more active interest in payment related and other financial issues.

The APNS vs the CPNE?

This is a factor. Over the years, the APNS and the CPNE have emerged as two very different kinds of organisations with very different interests as well. Both founded in the 1950s, over the years the APNS has become a sort of mediator between newspapers and the rest of the world looking after the financial interests

business was dwindling, two new English daily papers were also launched.

Both Express Tribune and Profit’s parent publication, Pakistan Today were launched that very year. At the same time, as other media groups entered the picture, a number of new Urdu and regional newspapers also flooded the market.

Worried by the decreasing size of the pie and the increasing number of hands want-

ing a piece, the APNS responded by closing ranks. They closed off some voting rights for new members like Tribune and Pakistan Today for example.

The decade since Tribune and Pakistan Today were launched has been a near-fatal one for print journalism. The government did what everyone feared and used its patronage of papers through advertisements to try and censor them. Continued fall in readership led to many papers not being able to pay their staff and laying off their teams. Despite it not being their domain, in the past few years the CPNE started becoming more active in trying to solve problems with advertising agencies.

As a result, they were front and centre in the implementation of the new 85-15 rule that is now also being fought for in Punjab. While the APNS has been standing by this, largely because there has been a big demand for the policy among newspaper publishers and journalists, they will be concerned about a diminished role if the roll out of the policy is successful and it takes off.

What really is it all worth?

Print media, particularly news media, has always found itself in an awkward position. Newspapers are not just an important record of history, but generally aspire to high journalistic standards. On the other hand, to keep a newspaper running there needs to be a sustainable business model behind them that makes money. Journalists need to be paid salaries, which means people need to pay to stay informed. Until the turn of the century and even after that, this worked because people would pay to get a newspaper or a magazine at their doorstep.

That is what it comes down to. This may be a business with a bigger purpose, you can call it the fourth pillar of the state if you like but it boils down to the same simple reality most things in life boil down to: it has to be financially viable. As it stands, print media is dependent entirely on advertising revenue. While this was just about government advertising, advertising by the private sector is not much better — especially since they see media as a commodity.

The reality is that the only way out for the print media is to report the news in a way that is true to a publication’s editorial vision, and also in a way that the reader of this day and age will be willing to pay money for. Without a return to this fundamental model where your readers pay you for good journalism, the future of the newspaper business in Pakistan is bleak, much like it is everywhere in the world right now. n

By Abdullah Niazi

This is the story of two different days at the same place in the same year. In May 2022, reports began to emerge that the cotton crop in Sindh was wilting. In Sanghar, one of the largest cotton producing districts in Sindh with cotton grown on 300,000 acres of agricultural land, less than 200,000 acres were being used to cultivate cotton. And on the 200,000 acres that were being used to grow cotton, crop performance was abysmal.

While the cotton crop in Sanghar suffered, other agricultural areas dependent on the down-river water from the Indus were affected as well. In Thatha, fishing villages were left without any source of livelihood as the nearly three kilometre stretch of river that crossed the region dried up completely and was replaced by huge deposits of sand. At the Kotri Barrage of the Indus in Sindh, water levels had fallen from 15,000 cusecs of water to barely over 2000 cusecs.

Figures from May this year showed that a major dip in the Indus of 10,000 cusecs (an outflow of 105,000 cusecs on May 19 and 95,000 on May 20) occurred at Tarbela dam, raising fears that the dam may have hit dead levels. Its inflows plunged to 77,900 cusecs on Friday from 98,000 cusecs on May 14. These flows are to be used Taunsa upstream in Punjab and in Sindh. The dam’s level stood at 1,406 feet on May 20 against 1,414 feet on May 16.

All of these are signs of the times. And while they are warning signs, they are not indicators that can help us predict the future.

A few months later in August, the entire district of Sanghar had been submerged in water nearly five feet deep in areas. The entire village of Chak 7 has been displaced and wiped out. More than 100 kilometres away in Sukkar, a similar story of devastation reigns. These are just a few pictures of the misery that the still raging floods in the country have caused.

Within the course of a few months this small village in Sindh had gone from being shrivelled to entirely waterlogged. This is the threat that has faced our agriculture for a long time, and has made itself very obviously known in this past year. In what has possibly been a historic year for Pakistan’s agriculture, and not in a positive way.

The Indus is dying

For decades, the Indus River has been suffering. Since the middle of the 19th century, it has undergone severe changes due to the development of the Indus Irrigation System, the

building of dams and barrages. Since the 1947 partition, the Indus River Treaty of 1961 has also contributed to the unnatural ebbs and flows of the river. All of these have had adverse effects on the water levels of the river and its different tributaries, and in turn has had an effect on the country’s agriculture. Now, however, we are beginning to see the emerging effects of climate change as well.

While it has faced both natural and human changes, the Indus has thrived off the basis of glaciers in the Tibetan Plateau. With climate change knocking on the door, that too might be a thing of the past. It is an issue facing many of the rivers that are fed from the Tibetan plateau. Mountains are the water towers of the world, especially in the case of Asia, whose rivers are all fed from the Tibetan plateau and adjacent mountain ranges. More than 1.4 billion people depend on water from the Indus, Ganges, Brahmaputra, Yangtze, and Yellow rivers which are fed by these water towers. Upstream snow and ice reserves of these basins, important in sustaining seasonal water availability, are likely to be affected substantially by climate change, but to what extent is yet unclear.

What is clear is that the early effects are already visible. In an article published in the journal for Global and Planetary Change, a report on the state of the Tibetan Plateau published a few years ago reads that the region has faced “evident climate changes, which have changed atmospheric and hydrological cycles and thus reshaped the local environment.” The report claims that “the Tibetan Plateau (TP) exerts strong thermal forcing on the atmosphere over Asian monsoon region and supplies water resources to adjacent river basins, and the effect of climate change on this region will have an impact on the Plateau energy and water cycle.”

The effects in Pakistan are clear. Erratic water levels, flash floods, and droughts all indicate that the river is in trouble. Meanwhile, priorities remain things like the Ravi Urban Development Project which has been earmarked as a future environmental catastrophe.

The floods

The biggest news this year not just in agriculture but in the entire country and possibly the world this year were the floods in Pakistan. In short, climate change has resulted in a gargantuan increase in the amount of monsoon rainfall that Sindh and Balochistan have seen this year. The two provinces saw the highest amount of water fall from the skies in living memory, recording 522 and 469 per cent

more than the normal downpour this year according to the met department. “Sindh has received 680.5mm of rain since July when the monsoon season actually began,” said a Met official.

“As per calculated and defined standards, Sindh normally gets 109.5mm of rain in the monsoon season. So it’s 522% higher than normal. Similarly, Balochistan receives 50mm rain on an average every monsoon, but it has so far recorded 284mm — 469% higher. The country has overall witnessed 207 times higher rainfall so far this monsoon and the season is going to last till September-end.”

The main reason behind the flooding has been this abnormally high rainfall causing hill torrents — which are a distinct type of waterway in which water drains from the mountains and hits localities and infrastructure in its path at an enormous speed. More than 200 hill torrents originate from the west of Suleiman Range and hit Taunsa, Dera Ghazi (D.G.) Khan and Rajanpur Districts of Punjab in Pakistan. Among these, 13 hill torrents have large catchment areas and flood potential. All of these have realised this potential this monsoon season at the same time. The discharge at Taunsa, Guddu & Sukkur barrages is more than Twice that of Kalabagh and Tarbela, showing that the additional water is coming from Koh-i-Suleman hills and torrential rains. Dams would not have stopped this overflow, particularly since the Indus is not overflowing, it actually has levels of water.

This has caused destruction in Balochistan and South Punjab, with the rains and a swollen Indus river delta wreaking havoc in Sindh. In KP, meanwhile, flash floods coming from fast melting glaciers have overrun shoddily and dangerously built constructions on the banks of rivers. The main cause behind the flash floods has been the inflow of heavy rains and a massive river current from the Kabul river that has overrun the province. In KP, in fact, while the Kabul river swelled because of excessive monsoon rains, with KP recording a 50% increase in the level of rain, one of the major reasons for the flash floods were cloud bursts in the Swat and Mingora regions that overran the Swat river and swept away hotels and buildings on the embankments. The met department, according to an anonymous source, did not pick up on the cloud burst and issued no advisory for it.

The economic impact alone has been devastating. All in all, according to the latest report of the Post-Disaster Needs Assessment (PDNA), Pakistan needs at least $16.3 billion for post-flood rehabilitation and reconstruction. The PDNA report, released by the representatives of the government and the international development institutions,

calculated the cost of floods at $30.1 billion – $14.9 billion in damages and $15.2 billion in losses. “Our priority is an adaptation for long-term measures to ward off climate change impacts. Pakistan is in the front line for advocacy and played a proactive role for highlighting climate finance. Our efforts will be focused on seeking $100 bln per year as promised in 2009 for climate finance and do the advocacy to increase the pledge three times,” adds Rehman.

Yet beyond this immediate need for reparations, Pakistan also needs a clear agenda on what it wants to do on the climate front. There is the immediate concern of rising temperatures, for example. According to Ali Sheikh, an expert on climate change and development, it is in the fundamental national security interest of Pakistan that global average temperatures stabilise at 1.5 degrees Celsius, since a change of 1°C has already caused serious disruptions and brought the economy to its knees. If no action is taken, Pakistan, like many other developing countries, will simply not have the residual resilience to cope with recurring climate disasters.

COP27

This has been our one gloomy grey-lining. For once, Pakistan was a major centre of attention at this global conference. The reason behind being in the spotlight was the impact of this year’s devastating floods that ravaged millions, destroyed crops, levelled entire villages, displaced 33 million people, and caused an estimated $40 billion in damages all over the country.

According to the Center for Global Development, developed countries are responsible for 79% of historical carbon emissions. Yet studies have shown that residents in least developed countries have 10 times more chances of being affected by these climate disasters than those in wealthy countries. Further, critical views have it that it would take over a 100 years for lower income countries to attain the resiliency of developed countries. Unfortunately, the Global South is surrounded by a myriad of socio-economic and environmental factors limiting their fight against the climate crisis.

The hotly contested issue of climate reparations, in particular the establishment of a financial mechanism for addressing the irreparable losses and damage caused by climate-induced extreme events in least developed countries, was always going to stir controversy. This was encapsulated best, perhaps, by the response of the United Kingdom. Recently elected Prime Minister Rishi Sunak briefly attended the conference and reaf -

firmed Britain’s commitment but remained quiet on the issue of reparations, “despite British negotiators backing a last-minute agreement to address reparations to countries suffering the worst impacts of climate change, with Pakistan leading the push for such a commitment,” according to a recent article in The Guardian.

The immediate worry is whether or not we will be able to spend the money right. Climate change has two key impacts. The first is to increase heat and carbon in the air. The other precipitation variability — which means changes in the trend of rainfall. In the short term, some of these conditions might even result in better yields for some of our crops but at the end of the day it will be fatal for our agriculture. We will start seeing deficiencies in micronutrients in different crops which could result in nutritional deficiencies in the population. The private sector is already adding these nutrients to products such as rice artificially but this will only further increase the economic disparity that exists in our country.

Food security

Pakistan has a problem. In an international ranking of the Global Hunger Index (GHI) this year, the country ranked 92 out of 116 nations, with its hunger categorised as ‘serious.’ Pakistan currently faces a scenario in which it is largely food sufficient but not food secure. Despite Pakistan being ranked at 8th in producing wheat, 10th in rice, 5th in sugarcane, and 4th in milk production, a 2019 report of the State Bank of Pakistan (SBP) showed that nearly 37% of households in Pakistan are food insecure.

At the end of the day, this is what it essentially boils down to. In a country like Pakistan, food sufficiency is the most important thing there is and at its core is the agriculture issue. In the three years since the SBP’s report, matters have only worsened. Food price inflation in Pakistan has been in double digits since August 2019. The cost of food has been 10.4-19.5% higher than the previous year in urban areas and 12.6-23.8% in rural areas, according to figures published by the Pakistan Bureau of Statistics. So how does a country with one of the largest agrarian economies in the world find itself unable to sufficiently provide food for nearly 40% of its population? For decades, agriculture has been neglected and people’s earnings have been hit by one economic crisis after another. On top of this, particularly in the past decade or so, climate change related disasters and changes in the environment have resulted in our already neglected agriculture becoming less competitive. n

of a calendar year two halves A tale of

By Daniyal Ahmed

Imagine you’re at the family dinner for bari Eid, you’ve chowed down on your favourite delicacies. You’ve had the time of your life; all is good. The morning after, you and many of your relatives are taken ill. Your family blames you, because they know it’s a given that you will fall ill, so why eat so much? They tell you how people have stomach infections every bari Eid. No one blames the chef who may have undercooked any of the food you consumed.

This is exactly what happened with the automotive industry this year.

Often derided as the sick man of Pakistan’s industrial complex, the automotive industry actually managed to stand on its feet for at least the first of 2022. The industry showed us a glimmer of what it could achieve. It was nothing short of a homecoming for a sector that many thought would finally ditch its title of an infant industry. In, perhaps, an ode to our cricket team this year, glimmers of what could have been is all the sector showed.

The sector was designated a problem child by a government bent on curbing forex

outflows to stabilise Pakistan’s balance of payments situation at the start of the summer. Things have not looked up for the sector since. This year, 2022, has for many Pakistanis and the rest of the Pakistani industrial complex, been a rollercoaster ride. Whether the other aforementioned groups enjoyed the ascent, as the automotive sector surely did, is debatable. However, everyone’s in consensus when they say they want off of the roller coaster in its descent.

The story of the automotive sector in 2022 is a story of this rollercoaster journey. It is one of two halves. Let’s start with the ascent.

Records galore

The automotive industry was nothing short of imperious going into June. The industry managed to end FY 2021-22 by shattering records and expectations all around about what its limitations were. The industry recorded the highest ever sales for four wheelers by hitting 344,712 units, and the second highest overall automotive sales of 2.17 million based on figures provided by the Pakistan Automotive Manufacturers Association (PAMA).

The sales were a runaway effect of the State Bank of Pakistan (SBP) slashing interest rates further in 2021 to galvanise the economy. Access to affordable credit led to outstanding auto financing reaching an all time high of Rs 367 billion in June 2022.

There was so much demand that automotive companies could simply not meet it. Companies had amassed warchests of advance bookings to the tune of Rs 189 billion with weight times spanning anywhere from multiple weeks to months. The first half of the year was akin to an age of innocence. This is not to say that observers were unaware that the industry could continue on this same trajectory, however, the crash that did arrive was something no one could have imagined.

At no point was this juxtaposition more obvious than in the month of May where the automotive industry, perhaps, had one final smile before it stepped onto the guillotine.

We exported our first car.

Pakistan exported its first, and only till date, car, the Changan Oshan X7 on May 12. And that’s about it. Profit asked Danial Malik, CEO of Changan Master Motors, about their plans for exports after exporting Pakistan’s first car to which he has not responded yet.

It was the best of times, but then it suddenly became the worst of times

The health of the automotive lending space is tied to the automotive market. The bottom line is that quarter one of 2023 will retain the status quo. We expect things to pick up in quarter two if there are improvements on the economic and political front, or even if there is a relaxation in automotive imports. We expect that, if these variables are met, lending will pick up even if the State Bank does not reverse its prudential requirements. Quarter four of 2023 is when we expect things to resemble normality, however, we have our predictions pegged to numerous additional variables

Despite the dearth of information available on the matter across the industry, everyone was rightfully jubilant when the news did break. Exporting a car was something that had until then seemed impossible given that we had never done it, and because of the general quality of our cars relative to other markets.

The week following this would be the one when the Government of Pakistan would tie the noose around the automotive industry’s neck for the remainder of the year.

Suffering from Success

So what happened in May had been brewing for months to come. Profit has already explained the relationship between Pakistan’s balance of payments problems and the automotive sector in an earlier piece. Read more: How does Pakistan’s auto industry contribute to its balance of payment crisis?

However, an increase in customer demand led to an increase in demand for automotive imports to actually manufacture the cars that

were to be sold. This also boosted demand for imports from ancillary industries, and imported cars as well. All of this culminated in March seeing a four-year high in automotive imports, the sum total of completely knocked-down (CKD) kits, completely built-up (CBU) units, and auto-parts imports, based on the data available from the Pakistan Bureau of Statistics (PBS). Context is important. Pakistan was experiencing a balance of payments crisis at the time and needed to stem its foreign exchange outflows. The automotive industry just happened to be a low hanging fruit that the government could go after. The rationale did not make a lot of sense though. The sector on its own had only accounted for 3.98% of Pakistan’s total import bill, based on PBS data. Maybe the government wanted to stem outflows due to its ancillary industries?

Whatever the reasoning, the government instituted an import ban on luxury items on May 19. Strike 1 and imported cars were done and dusted. The following day, on May 20, the SBP issued a circular stating that it now possessed administrative oversight over the im-

port of CKD kits and automotive parts for motor vehicles being imported into the country. Strike 2, and the entire industry was done and dusted. Finally, on May 24, the SBP revised its prudential requirements to just flat out make it as costly as possible to own a car with an engine displacement above 1,000cc. We’d say strike 3, but this was just adding insult to injury at this point.

The Walls of Jericho that had shielded the industry had collapsed. The arguments pertaining to the employment the sector created, or the industrialisation it facilitated, all were rendered useless within a matter of two days.

Humpty Dumpty’s great fall

What goes up, must come down, and whatever the government deems to be a burden on the country’s balance of payments must come down even harder.

Let’s catch-up. What happens when the government outright bans imported cars? Well, no imported cars. What happens when the SBP oversees foreign currency transactions for the import of CKD kits and parts needed for manufacturing motor vehicles when the country no longer has fiscal space to operate? You get import quotas where the SBP effectively rations foreign exchange for automotive and ancillary companies to meet their import requirements.

These quotas subsequently led to companies encountering supply side problems whereby they couldn’t actually cater to the demand that existed for their cars. And the more demand that you had, the more this was a problem. This most notably would lead to Toyota offering refunds for all the advance bookings it had taken. Furthermore, most notably the Big 3 of Toyota, Honda, and Suzuki would go on

Muhammad Iftikhar Javed, Business Head of Secured Lending at Bank Alfalah

I think 2023 will be the exact copy of 2019 which was the first year when cars went from retailing for ‘on’ to ‘off’. The premium attached to the prices for cars is over. If you go to the market to buy a car, then you’ll find it to be retailing for below its ex-factory price. This is because the cars being sold are still those that were bought at the previous invoice price

Suneel Munj, Co-Founder of PakWheels

to characterise the rest of 2022 with the term ‘non-production days’.

If there’s anything that industry observers have learnt this year, it is the expression “non-production days” (NPDs). Across the Big 3, Toyota spent 41 NPDs, Suzuki spent 17 NPDs, and Honda spent 15 NPDs. Millat Tractors, on the other hand, not only instituted its own NPDs, but went a step ahead and declared Friday to be a permanent NPD in perpetuity on December 15. This is not to say that other automotive companies did not spend NPDs, theirs were just far less in terms of calendar days compared to the aforementioned companies. These companies are also industry leaders across multiple segments so the pain just adds to the highlight reel for the year.

Beyond the supply side issues, automotive companies also faced a demand crunch. “3040% of industry volume is because of auto-financing. 30-40% of demand will be wiped out just because of the high interest rate, low tenor, and high up-front payments,” Muhammad Faisal, President Automotive Division at Lucky Motors, told us about the matter. The restrictions on auto financing were apparent, and their ramifications evident.

However, everything until now had

happened in May and June. June was the month when Pakistan first saw 20+% inflation in 2022. It has since averaged at 25.6% from July till November. Automotive sales contracted by 53% in July. “There is too much inflation. Fuel is also expensive. Customers cut demand on cars first as everything becomes expensive,” said Asghar Ali Jamali, CEO Toyota Indus Motor Company, back in August. Sales have continued going down the drain since.

Eleven months into the year, total automotive sales for 2022 stand at 1.66 million. This is 17% lower year-on-year compared to 2021 based on data provided by PAMA. The bulk of that decrease also appears in July when the average sales per month dip from above 30,000 units to below 20,000. If average monthly sales in 2022 maintained the pace they had between January and June for the rest of the year then 2022 would have beaten out 2021 in terms of sales as well.

Vive la résistance

Throughout all of this, the automotive industry fought back in whatever capacity they could. Firstly, all companies blamed the SBP for whenever

they had to observe NPDs. Secondly, companies also ensured that they cited the SBP’s measures as one of the reasons, amongst other things, for why they increased their prices. And there were a lot of price increases. Nearly every company across the industry averaged two price increases at the very minimum throughout the summer following the restrictions on the industry. These served as reminders to the customers to blame the government as well for adding to their hardships in trying to obtain a new vehicle. The efficacy, however, was and is still debatable.

Some companies tried more creative measures. The German automotive companies threatened that clamping down on them might invoke stern action by the nation of Germany itself against Pakistan in future commercial agreements. Toyota’s attempt at lobbying was, perhaps, the highlight of the year, with the company offering the infamous Louis Vuitton bag in one meeting.

Automotive companies also plied their charm to win over customers as well. They did so by offering discounts and offers in different forms. These included but were not limited to KIA’s immediate delivery with a price-lock,

The overall two- and three-wheeler market has declined by 34% compared to 1HFY21. We expect more inflation because of the issues surrounding the letters of credit. The difference between open market rates and interbank rates compounded with the fact that the letter of credits are being approved at 100% cash margins will cause a severe liquidity crunch. This crunch will disable manufacturers from enhancing their credit lines, and further hurt sales

Muhammad Salman, Director of Sales and Marketing at Road Prince

Hyundai’s under one month delivery and free registration, Suzuki’s free registration, and Changan just offering an entire goodie bag of discounts for its Oshan X7. These offerings were not limited to just passenger vehicles either. Yamaha and Suzuki extended very lenient credit lines for their motorcycles. Whereas Millat Tractors found itself in a legal battle with the Federal Tax Ombudsman’s Office for allegedly having consumed a discount meant for end-customers.

These discounts and offerings were not from the goodness of the companies’ hearts. They were a result of hoarding and glut in the automotive market due the greed that blinded investors. Profit covered how investors and companies had learnt this lesson the hard way in a previous story.

Read more: Why are some cars being sold for below showroom price

However, whenever the discounts were launched anytime throughout the year, customers knew to be on guard for whether

the deal they were being given was too good to be true. This year’s educational lesson about why customers should be wary of discounts in Pakistan’s market came at the courtesy of the KIA Sorento. Profit documented this entire educational experience that the Sorento unknowingly signed up for in an earlier piece.

Read more: The KIA Sorento 101 –

How not to price a car

We even had to document when it finally got a price increase because of how complicated a mess the discount had created.

Too little too late?

It’s not as if the Government of Pakistan was unaware of the fact that it had basically murdered the automotive sector.

It did revert a lot of the measures. On August 22, it rescinded the ban on imported cars and instead increased the duties levied upon them. The increase in duties was preceded by Dr Miftah Ismail, the then Finance

Minister of Pakistan, stating that he would levy the “maximum amount of permissible regulatory duties”. And he did not disappoint. The most notable of all duties that was levied was a 100% regulatory duty on imported electronic-vehicles.

However, again the government tried to mitigate the impacts of its actions on the sector by including end dates for when the duties would lapse. The duties levied on imported vehicles with combustible engines will lapse on February 21 based on Statutory Regulatory Orders (SRO) 1571(I)/2022 and SRO 1572(I)/2022 issued by the Federal Board of Revenue. The duty increase for electric vehicles has already lapsed. Why did the latter precede the former in having its pain come to an end?

Profit asked Arshad Raza, CEO of Premier Motors which is the parent of Audi in Pakistan, and Afaq Qureshi, Official Spokesperson of Federal Board of Revenue. However, neither knew the details of why the decision

was made. Media outlets have speculated there to be nefarious reasons behind the decision.

Beyond this, the government saw off the year by announcing an end to the State Bank’s oversight of automotive parts and CKD kits that would come into effect from the first week of 2023. Furthermore, the Government also announced a reduction in the additional customs duty on the import of tractors and their CKD kits.

All of this is too little too late for 2022. The year is over. However, 2022 will spillover into 2023, in the same manner as how every preceding year bleeds into the succeeding one. The question then is, how will 2022 impact 2023, and what can we expect?

What to expect in 2023?

First thing’s first. The automotive industry was collateral damage in the government’s attempts to stem foreign exchange outflow and stabilise Pakistan’s balance of payments. The aforementioned measures the government and SBP have taken to revive the industry are contingent upon the balance of payments not collapsing again, upon which it would not be unprecedented for the central bank to reassert administrative control over the sector. We have a very clear precedent now. So, what are things like on the macro front?

Profit asked Dr. Ali Hasanain, Associate Professor and the Head of the Econom-

ics Department at LUMS, about how the automotive sector could avert a fate similar to what it experienced in 2022. “We get the IMF and bilateral loans and sustain the status quo, in which case the letter of credits will open, CKDs will come for a few months or years, until we go back into crisis,” Hasanain says. So there’s that. The sector is basically at the mercy of the government? Will it be able to pull through? That is beyond the scope of this particular piece but Profit has documented the matter previously.

Read more: Jo Dar gaya woh mar gaya and ConunDARum: With IMF review delayed, Pakistan gives into China’s demand

Sticking to the theme of macro, what about automotive lending? The element that Faisal attributed 30-40% of demand for passenger cars alone to. Profit asked Muhammad Iftikhar Javed, Business Head of Secured Lending at Bank Alfalah, about the matter.

“The health of the automotive lending space is tied to the automotive market. The bottom line is that quarter one of 2023 will retain the status quo. We expect things to pick up in quarter two if there are improvements on the economic and political front, or even if there is a relaxation in automotive imports. We expect that, if these variables are met, lending will pick up even if the State Bank does not reverse its prudential requirements. Quarter four of 2023 is when we expect things to resemble normality, however, we have our predictions pegged to numerous additional variables,” Javed says.

Our macroeconomic factors link the entirety of the automotive market to how the government acts going forward. Pretty standard. We can safely say that the situation looks bleak. Particularly if you read the aforementioned pieces Profit has written on the matter.

On to micro then.

Profit asked Suneel Munj, Co-Founder of PakWheels, about what observers can expect to witness in the passenger car market. “I think 2023 will be the exact copy of 2019 which was the first year when cars went from retailing for ‘on’ to ‘off’. The premium attached to the prices for cars is over. If you go to the market to buy a car, then you’ll find it to be retailing for below its ex-factory price. This is because the cars being sold are still those that were bought at the previous invoice price,” says Munj.

“This is odd because with the current CKD situation, one would imagine that there is a shortage which would drive up on-premiums. However, that is not the case. I foresee this trend to carry into 2023 which will make it hard for companies to obtain new bookings. The era of crossovers is over. The higher sales numbers I predict will be in the more economical segment towards the lower end of the prices. Cars in the upper price segments will have limited sales, in my opinion,” Munj continues.

Now, this alone would be a good place to end the article. Munj has given us his review of the passenger car market which is what most would be interested in. However, because this is a review of the entire sector, Profit went ahead and got forecasts for all segments of the automotive segments. At least the ones identified by PAMA, in their sales data.

Buses and trucks then. Profit asked Samir Malik, CEO of Master Motors, about his outlook on the bus and trucking segments. Let’s start with the former first because we’re probably all going to be using it more often given the current cost of fuel. “Moving forward, we do not think that there will be a significant drop in demand for us in the bus and inter-city bus segment. This is because of the unique product that we provide. However, the overall demand across the market will drop. We feel

We get the IMF and bilateral loans and sustain the status quo, in which case the letter of credits will open, CKDs will come for a few months or years, until we go back into crisis

Dr Ali Hasanain, Associate Professor and the Head of the Economics Department at LUMS

It will take a minimum of two years for things to get better and rebalance. We think demand will go down further by 30%

Samir Malik, CEO of Master Motors

demand will drop by 30-40% in 2023,” says Malik.

Now Profit was not able to discuss the 27% year-on-year drop in Masters’ bus sales, the highest in their segment based on PAMA’s data because that too, is beyond the scope of this piece. On to trucks.

“Trucks are a very delicate segment tied to the interest rate. 2022 was a positive start. However, the Rupees depreciation rendered the prices of trucks beyond the reach of prospective buyers. Furthermore, the confluence of the increase in the interest rate, and the end of schemes that provided trucks at affordable rates such as the Kamyaab Jawan have forced buyers to acquire trucks at upwards of 16-17% interest rates. All of this has led to customers delaying their purchase or buying second-hand trucks,” says Malik.

“The general reduction in the demand for products has reduced the livelihoods of truckers who would transport products. Furthermore, the inflation rates have forced transporters to increase their rates. These increases have not been welcomed by customers, and have further reduced the livelihoods of customers,” Malik continues.

Profit asked Malik whether he sees the market for trucks recovering from this to which he responded, “It will take a minimum of two years for things to get better and rebalance. We think demand will go down further by 30%”. Doom is the general trend Profit encountered when asking for predictions. There was one respondent that was relatively optimistic about 2023.

“I think going into next year demand should pick up slightly. It’s not going to be a full recovery but there should be some im-

Raheel Asghar, CEO of Millat Tractors

provement in the market, especially as we head towards March because that’s when the season is,” Raheel Asghar, CEO of Millat Tractors, told Profit. On the back of this optimism, Profit then proceeded to ask if there were any interesting trends that observers would witness in 2023 to which Asghar responded with, “No, not really. I think it’s going to be a matter of survival. It’s not going to be a good year for us.”

Profit also asked whether the downward revision in the additional customs duty levied in SRO 693, the SRO that determines the additional customs duties levied upon motor vehicles and their requisite parts, would benefit the tractor industry in 2023. “It’s not going to have any impact at all because 693 is basically for localised parts. Everything that is on 693, is everything that we have already localised. We’re not really importing anything that’s on 693 SRO,” answered Asghar.

And finally, the elephant in the room, the two- and three-wheeler segment. Sticking to the theme of the forecasts that Profit received, this too was all doom and gloom. Profit asked Muhammad Salman, Director of Sales and

Marketing at Road Prince, about what customers and observers can expect. “The overall two- and three-wheeler market has declined by 34% compared to 1HFY21. We expect more inflation because of the issues surrounding the letters of credit. The difference between open market rates and interbank rates compounded with the fact that the letter of credits are being approved at 100% cash margins will cause a severe liquidity crunch. This crunch will disable manufacturers from enhancing their credit lines, and further hurt sales,” said Salman.

So 2023 looks like it has all the makings to be as bad as, if not worse than 2022. Maybe, we will miss 2022? At least the first half, that is. So, how do we end this? ‘Disaster’ is the word Munj used when Profit asked him to describe 2022 for the automotive sector. Frankly, there’s no better way for what the sector went through. At least in the second half of the year because despite how bad it was, it’s important to remember the good that existed throughout the year as well. Or that is at least what everyone tells you when you’re going through a difficult situation. n

No, not really. I think it’s going to be a matter of survival. It’s not going to be a good year for us

The MPC met eight times to decide the policy rate but couldn’t win against inflation

By Ariba Shahid

Ending 2022 on a low hasn’t been easy; especially when inflation and interest rates are at a multiyear high.

Despite being in negative real rates territory, the State Bank of Pakistan (SBP) in its annual report, however, says that the Monetary Policy Committee (MPC) has reversed the accommodative monetary stance.

“The monetary policy committee reversed the accommodative monetary policy stance and increased the policy rate by a cumulative 675 bps during FY22, as a host of domestic and global developments weighed heavily on Pakistan’s performance and increased the risks to macroeconomic stability during the year,” read the report.

This calendar year, the SBP hiked the policy rate by a cumulative 625 bps.

Pakistan’s central bank has been one of the seventh most aggressive rate hikers in the world during the calendar year. War struck Ukraine stands at number one, followed by Hungary, debt stuck Sri Lanka, Colombia, Chile, and Kazakhstan at number six.

Despite such a large jump bringing the policy rate to 16%, the SBP has not managed to contain inflation. Here is a summary of the SBP MPC meetings over the year.

January 24, 2022

We entered 2022 with a 9.75% interest rate. The first MPC meeting of the year was on January 24, 2022. The MPC decided to leave the policy rate unchanged. This was done “in line with the forward guidance provided in the last monetary policy statement.”

During the last MPC meeting of 2021, the SBP hiked the policy rate by 100bps and locked itself into long-term open market operations (OMO) injections. At this point, the SBP noted that following the last meeting,

the demand moderating measures undertaken such as raising policy rates, higher bank cash reserve requirements, regulatory tightening of consumer finance, and the curtailment of nonessential imports; had gained traction and improved the outlook for inflation.

“Looking ahead, and against the backdrop of these developments that have improved the inflation outlook, the MPC was of the view that current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5-7%, support growth, and maintain external stability,” read the statement.

March 8, 2022

Status quo again! The MPC decided to keep the policy rate unchanged at 9.75% as “the outlook for inflation has improved following the cuts in fuel prices and electricity tariffs announced last week as part of the government’s relief package.”

This refers to PM Imran Khan’s announcement of subsidising fuel prices and other relief measures announced. Regarding the relief, the MPC added, “Under the assumption that the recently announced relief package will not add to the fiscal deficit due to other offsetting savings, inflation should be lower through the rest of the fiscal year than earlier estimated.

The MPC, however, did say that if required, it is ready to meet and take steps when needed.

April 7, 2022

Earlier than expected, the MPC called an emergency meeting and hiked the policy rate by 250 bps as inflation forecasts had been revised upwards to slightly above 11% in FY22. Political uncertainty at this point was at a high. The MPC even remarked on the 5% depreciation in the rupee and a sharp rise in domestic secondary market yields as well as Pakistan’s Eurobond yields and CDS spreads since the last MPC meeting.

Very important to note that PM Imran

Khan was ousted through a vote of no confidence two days later.

The policy rate was increased as the inflation rate was persistently higher than the interest rates. The SBP hiked the policy rate to bridge the gap and to bring the forward-looking real interest rates to mildly positive territory.

The SBP announced its decision to take further actions to reduce pressures on inflation and the current account, namely an increase in the interest rate on the export refinance scheme (EFS) and widening the set of import items subject to cash margin requirements.

May 23, 2022

Another policy rate hike. The MPC raised the monetary policy rate by 150 bps bringing it to 13.75%. This was the first MPC following Reza Baqir retiring as governor SBP; with Murtaza Syed, Deputy Governor acting as governor SBP.

“This action, together with much-needed fiscal consolidation, should help moderate demand to a more sustainable pace while keeping inflation expectations anchored and containing risks to external stability,” read the statement.

The MPC at this point remarked that Pakistan’s economy, after contracting by 0.9% in FY20 in the wake of Covid, has rebounded much more strongly than anticipated, growing by 5.7% last year and accelerating to 5.97% this year, as per provisional estimates.

The MPC also highlighted that instead of the budgeted consolidation, the fiscal stance in FY22 is now expected to be expansionary.

Stepping out of character, the SBP called upon fiscal action. “Timely action is needed to restore fiscal prudence while providing adequate and targeted social protection to the most vulnerable.”

July 7, 2023

The MPC decided the hike the policy rate by 125 bps to 15%. It also announced that the interest rates on EFS and LTFF loans would be linked

to the policy rate to strengthen monetary policy transmission while continuing to incentivise exports by presently offering a discount of 500 bps relative to the policy rate.

While the MPC in the past had commented on how the energy subsidy would result in lower-than-expected inflation; in July it called it unsustainable.

“Since the last meeting, the MPC noted three encouraging developments. First, the unsustainable energy subsidy package was reversed and an FY23 budget centered on strong fiscal consolidation was passed. This has paved the way for completion of the on-going review of the IMF programme, which will ensure that tail risks associated with meeting Pakistan’s external financing needs are averted.”

This mirrors the sentiment of the May MPC meeting whereby a call for fiscal prudence was made.

At this point headline inflation grew from 13.8% year on year in May 2022 to 21.3% in June; the highest since 2008. The SBP called this a broad-based increase. More than 80% of the items in the CPI basket experienced inflation of above 6%.

August 22, 2022

The SBP finally found a governor. Jameed Ahmed was appointed on August 19. During his first meeting as governor, the hiking streak took a pause and the MPC decided to maintain the policy rate at 15%. The MPC pointed out that from September 2021 to date the policy rate had been hiked a cumulative 800 bps, and administrative steps had been taken to curtain imports.

Despite all that, headline inflation rose

further to 24.9% in July, with core inflation also ticking up. “This was expected given the necessary reversal of the energy subsidy package—effects of which will continue to manifest in inflation out-turns throughout the rest of the fiscal year—as well as momentum in the prices of essential food items and exchange rate weakness last month.”

It is important to note that the SBP called it a necessary reversal.

At this point in time, the MPC expected inflation to decline sharply and fall to the 5-7% target range by the end of FY24, supported by the lagged effects of tight monetary and fiscal policies, the normalisation of global commodity prices, and beneficial base effects.

October 10, 2022

The MPC made another decision to maintain the policy rate at 15%. This was due to the “continued deceleration in economic activity as well as the decline in headline inflation and the current account deficit since the last meeting.”

The floods, however, acted as an exogenous shock to economic planning. The SBP felt that the existing monetary policy stance strikes an appropriate balance between managing inflation and maintaining growth in the wake of the floods. It did mention that inflation could be higher and more persistent due to the supply shock to food prices.

The MPC felt that because of the flood, growth prospects had weakened, which would reduce demand-side pressures and suppress underlying inflation. In light of these offsetting considerations, the MPC considered it prudent to leave monetary policy settings unchanged at that stage.

November 25, 2022

The last MPC meeting of the calendar year ended with a 100 bps rise in the policy rate to 16%. This was an unexpected rate hike considering the floods in Pakistan. However, it was not unwarranted as the inflationary pressures have proven to be stronger and more persistent than expected.

Inflation increased sharply in October. The SBP called the previous month’s administrative cut to electricity prices “unwound”. The MPC added that it will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth.

The tldr:

To sum it up, this year was marked with financial challenges. However, for the SBP one challenge was consolidation in the fiscal and monetary policy. Having an expansionary fiscal policy, while monetary tightening is underway is counterproductive. The major challenge for the SBP this year has not been the development of digital products or increasing financial inclusion. Instead, it has been tackling inflation and shoring up reserves.

We’re ending the year with inflation clocking in at 23% in November, the reserves at a multi-year low of $5.8 billion dollars, and the import cover of fewer than 1.1 months.

However, despite the hikes; the question of whether this is enough to curtain inflation remains, especially in a cost-push inflationary landscape. n

‘Country has beautiful, prosperous, future’ says man who won’t be in country this time next year

By The Dependent

NO MAN’S LAND – An important sounding man, while addressing a ceremony featuring some semi-important people hoping to be told what they wanted to hear, reassured the audience that the country has a beautiful and prosperous future.

These words were uttered by a man who, experts reiterate, will not be a part of this country’s future.

“We hear every day that the country will default. There is no chance of that as long as I am here,” said the man who might not be here for too long.

“The country can progress and it will. The country has a beautiful future irrespective of whether I am here or not,”

he added, clearly looking to throw the possibility of his eventual departure into the reassurance mix.

When pressed to address the harsh realities evident both empirically and statistically the important sounding man conceded that things were indeed tough.

“Yes, we are in a tight position, but that is not my fault,” he added in a matter-of-fact tone amidst quizzical expressions in the audience.

“So don’t come running after me to the UK if things don’t go as you hope they will next year,” the important sounding man insisted.

“Other than that, there’s absolutely no reason to be worried about the country’s future.”