There are a number of economic events and happenings in Pakistan which are difficult to find immediate and rational explanations for. This is the result of contrasting developments, some positive and others negative. Consequently, the net impact is unpredictable.
Further, there are problems with some estimates by the Pakistan Bureau of Statistics (PBS). They appear to be in contradiction with observed developments at the ground level in the economy.
The objective of this article is to highlight some apparently contradictory developments on the economic front in the country.
The first such surprising development is that of an economy like that of Pakistan which is in the grip of severe ‘stagflation’ today. The inflation rate is in the mid-20s, and the GDP growth rate is likely to be in the range of only 2 to 2.5% in 2023-24. However, it is truly remarkable that over the last one year the stock market has shown a very strong recovery despite the weak economy. The KSE-100 index has risen by as much as 59.4% since end-February 2023. Earlier, from end-February 2021 to end-February 2022 it had declined cumulatively by 12.2%.
Why has the stock market demonstrated such buoyancy? A large part of the index consists of corporate entities in the large-scale manufacturing sector. This sector has been plagued by cost-push inflation, due particularly to the extremely high rate of increase in electricity and gas tariffs, very high cost of capital because of the extremely high interest rates and either high imported input costs or........