Inflation, IMF and investment — did Pakistan learn anything from 2023?

2023 was truly the year where inflation destroyed the remaining confidence across households.
Published December 28, 2023

It is becoming increasingly difficult to keep track of all that ails Pakistan. 2023 was essentially a year where crises across the political, economic, and security domains coalesced in a way that few could have imagined. And while the near- and long-term implications of the collapse post-2008 democratic order are yet to fully play out, the economic crisis has reached a point where even urban upper-class citizens are beginning to feel the pinch.

Here are the key events that perhaps sum up the agony of 2023.

Inflation — a monster that refuses to be tamed

Pakistani media is known to use the “mehengai ka toofan” [storm of inflation] line to grasp the attention of inattentive eyeballs, but 2023 was truly the year when inflation destroyed the remaining confidence across households. The depreciating currency, rising energy prices, and the second- and third-order effects on yet another ongoing IMF programme ensured that inflation continued to wreak havoc across large swathes of the economy.

All this happened while the central bank remained committed to its medium-term inflationary target, a testament to the institution’s delusions. Others also joined in on the action to argue that the base effect would soon lead to lower inflation.

But this was not the case and consumer prices rose by nearly 30 per cent during the calendar year, according to the consumer price index published by the Pakistan Bureau of Statistics.

 The consumer price index in Pakistan clocked in at almost 30pc for 2023. — Chart accessed via
The consumer price index in Pakistan clocked in at almost 30pc for 2023. — Chart accessed via

For those looking for a positive spin, Pakistan ranked first in the subcontinent when it comes to inflation — Bangladesh came in second with 10pc, while India finished dead last with a 6pc increase in its consumer price index during the same period.

Dar’s staring contest with the IMF ends in defeat

The House of Sharif’s return and entry into the good books of those that matter most is the stuff of legends. But even more legendary was the return of Ishaq Dar to the finance ministry, with Mr Dar reminding those who still cared about the economy that he has a 25+ years of experience in dealing with the IMF (that this experience itself ought to be a disqualification from the job of finance minister is a topic for another column).

While the dollar was initially scared of Mr Dar’s return to Islamabad, and he set in motion another attempt to maintain a peg for the rupee (leading others to make their own peg of choice to ease the pain), 2023 was the year in which Daronomics was defeated.

The IMF ultimately won the staring contest, but Dar’s ghosts continue to linger on in Islamabad and Rawalpindi.

An obsession with a stronger rupee makes sense, given that it creates some space to control inflation, especially given the country’s energy import needs. But such measures provide only short-term relief, as evidenced numerous times in the past.

Will 2024 lead Pakistan’s policymakers to choose a different path? This remains to be seen, but given that the House of Sharif is apparently the frontrunner in the upcoming elections, another futile attempt at Daronomics cannot be ruled out.

SIFC — the solution for all ills, future and current

Pakistan’s elite need four-letter acronyms to convey that the “taqdeer” [destiny] of the country is about to change. While they typically spin these acronyms as changing the destiny of the country for the better, the outcome is often exactly the opposite.

2023 was the year when the red carpet was rolled out for the Special Investment Facilitation Council (SIFC), focusing on everything including mining and agriculture. Pakistanis at home and abroad were beseeched to not lose hope by powerful individuals who vowed to make Pakistan a G20 economy by 2030. Roadshows were conducted and investments were sought through the SIFC in a bid to turnaround the economic prospects of the country.

In addition, big targets were set for growing exports, including a $100 billion IT export target. Shortly after announcing the target, however, internet services were disrupted in the country to prevent a virtual jalsa by a party that is struggling to even retain its electoral symbol.

Since the economy is all about data, here is a fun-fact for you: Pakistan attracted $2.1bn in foreign direct investment inflows in both 2022 and 2023, despite all the focus on the SIFC and the billions that were supposedly coming in from the Gulf. Maybe 2024 promises more in FDI as the SIFC mechanism matures?

As the saying goes “umeed pe dunya qayam hai” [the world survives on hope].

What comes next in 2024?

Predicting things is a near-impossible task in Pakistan. After all, back in 2021, many were planning for a 10-year uninterrupted period of rule, only to face unimaginable repression (that is condemnable and ought not to be tolerated) in 2023.

But what is clear is that three key risks will continue to cast a dark shadow over Pakistan and its economy — inflation, instability, and indecision.

With the country needing another IMF programme soon after the current one ends, the inflationary cycle is far from over. There are many who expect that this will not be the case, but the austerity-driven policies that the IMF will impose, and the additional pricing adjustment that a new programme will demand, make it likely that the upward trajectory of prices will continue in the near-term.

With elections coming up fast, it is difficult to know exactly what the new ruling dispensation in Pakistan will look and feel like. But the ongoing crackdown against Imran Khan and those who have courageously remained loyal to him suggests that things are unlikely to settle in the near-term. If the electoral process is handled in a ham-fisted way, the illusion of stability created through repression may be swept away, leading to another round of confrontation that is currently not being baked into most scenarios being discussed. The hybrid regime seems to have survived for now, but it is perhaps the weakest it has ever been.

Given Imran’s popularity, the economic pain felt by citizens across classes, and the seething anger among a younger generation that is refusing to bend the knee to the status quo, a new ruling dispensation will have, in the best of circumstances, very limited space to embark on a reform agenda. As such, more indecision may be around the corner, meaning that 2023 may look and feel like nothing by the time December 2024 comes along.

For the betterment of Pakistan and its beleaguered citizens, one can only hope and pray that these risks do not materialise.

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