According to a PRIME study released on Thursday, the Pakistan Prosperity Index (PPI) has grown 12.8% due to an improvement in economic operations.
The Pakistan Prosperity Index is a composite of trade volume, private-sector lending, buying power, and manufacturing output indexes.
Due to the restart of commercial activity and the access of international markets, trade volume increased by Rs548 billion year on year and Rs360 billion month on month.
Borrowing from banks by the private sector increased by Rs170 billion year on year and Rs25 billion month on month. This trend can be attributed to decreasing borrowing costs and a reduction in the budget deficit, which have lowered the government’s borrowing needs from commercial banks, hence lessening the crowding out effect.
In terms of purchasing power, the YoY inflation rate was 9.7 percent, while the MoM inflation rate was -0.3 percent, indicating a gain in purchasing power.
Food and energy price increases have contributed to the current high levels of inflation.
Large-scale manufacturing (LSM) gained 4.36 percent year on year. This increase can be attributed to increased demand resulting from the ease of lockdown, widespread vaccination, and business reopening.
Furthermore, rising manufacturing costs fueled by higher energy prices, as well as supply side disruptions of raw materials, all had a role in limiting LSM’s output.
Despite this, the general economic prognosis, as judged by the Pakistan Prosperity Index, appears to be positive.
The index’s depiction of the economy’s performance is consistent with the latest Business Confidence Survey 2021 conducted by the Overseas Investors Chamber of Commerce and Industry (OICCI), which also showed a strengthening of business confidence and augmented growth prospects as a result of an increase in business activities.
With the relaxation of lockdown restrictions and a major vaccination effort, the overall status of the economy appears to be positive and on track. However, there is still a need to reduce inflationary pressures, as doing so will not only boost purchasing power/real incomes, but will also lower the input costs of large-scale manufacturing.
Addressing supply side shocks in basic food products is important for reducing food inflation, which is the primary cause of rising overall inflation in the economy. These supply-side shocks necessitate more open trade policies and the abolition of state intervention in the market.
Based on the availability of essential data, the PRIME Institute publishes the Pakistan Prosperity Index report with a two-month lag; the current edition includes data from July 2020 to June 2021.
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