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January 20, 2020

Pakistan’s FY14/15 Inflation Clocks in at Lowest in Eleven Years

Pakistan, South Asia’s second-biggest economy, posted the lowest inflation in over a decade in the fiscal year that ended June 30, largely due to the decline in global oil prices.

The consumer price index for July 1, 2014-June 30, 2015 was recorded at 4.53 percent as against 8.62 percent in the previous year, according to the figures released on July 1 by Pakistan Bureau of Statistics.

“Pakistan being a major oil importing country has been a major beneficiary of sharp decline in global oil price as lower oil prices had a significant impact on inflation,” the Karachi-based brokerage house Topline Securities said in its analysis.

During the year, international Arab light oil prices declined by 32 percent, dragging down the domestic oil prices by 28 percent. Lower oil prices impacted public transport fares and also had a trickle down impact on food and non-food inflation.

Declining inflation trend helped Pakistan’s State Bank (SBP) to cut key policy rate by 300 basis points to 7 percent in the year 2014-15, the lowest in about 42 years, according to the Bloomberg data.

Topline Securities forecast inflation to pick up gradually to 6 percent in FY 15/16 due to stability in global oil prices. It expected SBP to maintain the discount rate at 7 percent for the remainder of 2015.

The International Monetary Fund (IMF), in a recent review of Pakistan’s economic performance has noted progress toward macroeconomic stability due to reforms carried out by the government of Prime Minister Nawaz Sharif which took over in June 2013.

In September, 2013, IMF bailed out Pakistan with a $6.6 billion loan package after the country nearly defaulted on its external payments. The IMF Executive Board this week successfully completed the 7th review under the 3-year Extended Fund Facility, resulting in an immediate release of $506 million out of the loan.

MSCI, an international investment research firm, said in June it was adding Pakistan to its review list for a potential re-classification to Emerging markets from frontier markets as part of the 2016 Annual Market Classification Review.

Emerging markets refer to countries which do not have economic strength of countries like the U.S. or Japan but are seen as being in the process of establishing a more mature marketplace. Frontier markets are categorized as the riskiest markets in the world to invest.

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