While the country has deferred its immediate economic threats with the assistance of IMF and other countries, the broader economic landscape still remains challenging and it is expected that this situation will continue to persist for the remaining year.
Inflation continues to be a concern. With the Consumer Price Index (CPI) increased by 29.4%, which is the highest year-on-year increase in the CPI since 2008. The main contributors to inflation in June 2023 were food and transportation prices, which increased year-on-year by 39.5% and 32.6%, respectively.
The fiscal budget announced in June prioritizes servicing of foreign debt. This has required for the government to focus on revenue generation through tough measures of increasing taxes for salaried individuals and businesses, and by increasing surcharges / tariffs for utilities (electricity, gas), and fuel.
In light of the above indicators, the Jamat is advised on the following:
- The increased taxation measures and rise in tariffs for utilities and fuel will exert further pressures on household disposable income. This will require families to strengthen their financial discipline and cut back on unnecessary spending.
- The present interest rates for borrowing are very high. Do not take unnecessary loans or credit card debts. Be careful of unauthorized digital loan platforms that are not listed with SBP or SECP and are tempting individuals and businesses to avail loans through their services. There have been recent cases where this has led to extortion and blackmailing. Be aware of fraudulent calls and text messages that tempt you to share your NIC and other personal details.
- The Jamat should look to secure their savings and investments in fixed income products offered by the banks that are presently offering a high return to the depositors. In addition, the Jamat may also learn more about the investment options offered by the government’s national saving schemes.
- Do not get tempted in daily trading activities within the stock market which is behaving in an extremely unpredictable manner and can very quickly cause severe losses. It is suggested that a better approach is to seek proper consultation for long term investments that offer stable dividends (returns).
- The rising cost of materials such as steel and cement are impacting the cost of construction for houses and building projects. Jamati members that are considering investments in under-construction or upcoming projects should be aware of the risk of possible escalation in final prices that may differ from the initial booking price. It is important to understand the terms and conditions of building projects for future price adjustments and the penalties for default on payments or cancellation of bookings.
- Government’s policies are now making a clear distinction between tax filers and non-filers. Various measures have been introduced to penalize non-filers on activities such as on cash withdrawal from banks, transactions related to properties, shares and other assets, and various other expenditures. The Jamat is strongly encouraged to proactively fulfill their tax obligations.
- Businesses pertaining to manufacturing are facing rising costs for inputs such as raw materials, labor, and energy. This will put further stress on routine cash flows which will require careful evaluation of business feasibilities and adaptation to new technologies such as solar products. It should be noted that bank Interest rates are expected to remain exceptionally elevated. Therefore, unnecessary debt-driven business activities should be reassessed.
- Amidst high inflation and reduction in disposable income levels, consumer spending may remain stagnant and slow. Jamati members associated with retail businesses should reassess pricing, inventory and marketing strategies accordingly. While government’s current measures to curb imports presents challenges, it also opens opportunities for retailing of new domestically produced products that may offer better profit margins.
- Jamati members associated with agriculture are advised to adapt to the rising risks of climate change by investing time in learning about new farming practices and technology. As part of the government’s strategy to improve the country’s agriculture production, there are indications that banks will be offering more options for agriculture financing. The Jamat is encouraged to work in groups and learn more about these options and improve market supply linkages.
The Council would like to re-emphasize that the Jamat needs to remain very careful in these tough conditions. At the same time the Jamat should not panic and remain patient during this low economic cycle. The Jamat is advised to maintain good relations with its employers, clients, associates, and continue to upgrade their skills where possible.
The Council will continue to monitor the situation and advise the Jamat accordingly.