08 Pakistan’s Catch-22 situation with the IMF Bailout
10 A plan to turn Punjab into a communist dictatorship has been foiled. For now
15 After a complete plummet, Pakistan’s cement industry is seeing healthy margins again. What prompted the comeback?
17 The myth of Pakistan’s as a trade corridor needs to die
20 Is registering your VPNs with the PTA a problem?
24 Pakistan’s auto industry may soon need to abide by safety standards
28 Is it too early to celebrate the cut in the policy rate?
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Pakistan’s Catch-22 situation with the IMF Bailout
Does Pakistan possess the capacity to meet the IMF’s conditions?
JBy Nisma Riaz
oseph Heller’s seminal work, Catch-22, portrays a paradoxical rule ensnaring soldiers during World War II: pilots are deemed insane if they wish to avoid dangerous missions, yet the very act of requesting to be grounded proves their sanity, compelling them to continue flying. This concept of a no-win situation, burdened by conflicting conditions, strikingly parallels Pakistan’s current
predicament in negotiating an Extended Fund Facility (EFF) with the International Monetary Fund (IMF).
The EFF is a critical financial programme designed for countries grappling with severe balance of payments challenges and structural economic issues. Spanning three years or more, it aims to assist nations in implementing fiscal, monetary, and structural reforms to promote economic stability and growth.
Pakistan’s situation mirrors this catch-22. Earlier this year, the IMF proposed a $7 billion aid package over an extended period, intended to stabilise Pakistan’s economy. Finance Minister Muhammad Aurangzeb heralded this package in July 2024 as a step towards macroeconomic stability. Yet, approval from the IMF’s Executive Board remains pending.
The crux of the dilemma: IMF approval is contingent on Pakistan meeting specific conditions, while the funds required to meet these conditions are contingent upon receiving IMF approval. This creates a classic catch-22—Pakistan needs the bailout to meet the conditions, but cannot secure the bailout without first fulfilling them.
Tough Conditions for the IMF Bailout
The IMF’s approval of a $3 billion, nine-month Stand-By Arrangement (SBA) in July 2023 was instrumental in averting an imminent default. This agreement outlined the reforms needed for external stability and economic growth, enabling Pakistan to meet its fiscal year 2024 financing needs and bolster foreign exchange reserves. The SBA was also crucial for facilitating unrestricted trade and allowing a market-determined exchange rate.
With the SBA now concluded, Pakistan is awaiting the IMF Executive Board’s nod for a new, 37-month EFF worth $7 billion. This extended programme is envisioned as the bedrock for Pakistan’s medium-term external stability. After reaching a staff-level agreement with the IMF in July 2024, optimism was high. However, this optimism was dampened when the anticipated approval from the IMF Executive Board was postponed beyond the August 2024 deadline, plunging Pakistan’s economy back into uncertainty.
Why the Delay?
The IMF’s May 2024 staff report estimated Pakistan’s gross external financing needs at approximately $124 billion for fiscal years 2025-2029. For fiscal year 2025 alone, external financing needs are pegged at $25-30 billion, including debt repayments of about $26.2 billion, with $4 billion allocated for interest payments. The State Bank of Pakistan (SBP) has indicated that around $16 billion of this debt is expected to be rolled over.
Yet, progress on securing these rollovers and additional financing has been slower than anticipated, resulting in a $2 billion funding shortfall. This shortfall has contributed to the delay in IMF approval for the new programme.
To address this, Pakistan is seeking rollovers and additional financing from commercial banks. Reports suggest that Pakistani authorities might sign the Letter of Intent (LOI) after securing approximately $1.2 billion through a Saudi Oil Facility and a commercial loan ranging from $800 million to $1 billion. However, the delay in finalizing these agreements has led the IMF to impose two critical conditions: securing around $12 billion in rollovers and addressing the shortfall in the Federal Board of Revenue’s (FBR) revenue collection targets.
The Urgency of an IMF Deal
Pakistan currently holds over $14.7 billion in foreign exchange reserves, with $9.4 billion managed by the SBP, covering approximately 1.7 months of imports. While the delay in securing the EFF is manageable in the short term, the pressing question remains: how long can Pakistan sustain itself without the bailout?
In the interim, Pakistan has managed its balance of payments by restricting foreign exchange payments to inflows such as export earnings and remittances. Tighter fiscal and monetary policies have curbed demand, slowing imports and benefitting from favourable global commodity prices. Remittance inflows have also risen, from an average of $2.2 billion per month in the first half of FY24 to around $3 billion per month.
Nevertheless, without IMF support, Pakistan could struggle to meet external debt repayments, exerting pressure on its foreign reserves, which include deposits from allied nations. The need to meet these debt obligations to secure IMF assistance further strains reserves, creating a vicious cycle.
Consequences of Further Delay
Aprolonged delay in the IMF programme could precipitate an economic crisis. Difficulty in securing rollovers or additional funding from both official and private creditors could intensify. The government may need to reintroduce import restrictions, similar to those of 2023, which would hamper industrial production, escalate unemployment, and diminish government revenue, adversely affecting GDP growth, projected at 3.6% for FY25.
Depletion of foreign reserves could destabilise the Rupee, potentially leading to a re-
surgence of the grey market and capital flight. The SBP might have to halt interest rate cuts to protect the currency, but a major devaluation of the Rupee remains likely, exacerbating economic pressures.
Foreign investment could decline, with foreign investors possibly divesting equities and bonds, while Foreign Direct Investment (FDI) might slow. Key privatisation projects and strategic ventures could also face difficulties attracting investment.
Without IMF assistance, Pakistan would struggle to build foreign exchange buffers for future stability, making debt restructuring an almost unavoidable outcome. This could occur sooner rather than later if current financial conditions persist.
Moreover, Pakistan’s geopolitical standing adds complexity. Strained relations with Western nations and China, compounded by financial issues related to the China-Pakistan Economic Corridor (CPEC), further complicate the situation.
What Needs to be Done?
Given the severe consequences of further delay, it is imperative for Pakistan to secure IMF approval promptly. The government must act decisively to address the funding shortfall. Options include securing additional rollovers, new loans, financial support from allied nations, or divesting stakes in state-owned enterprises like Reko Diq. Additionally, reversing unbudgeted subsidies, such as Punjab’s power subsidy, and addressing the FBR’s revenue shortfall through increased petroleum levies or sales taxes could help bridge the gap.
Broadening the tax base by taxing retailers and rationalising agriculture taxes is also crucial for long-term fiscal stability. Though these measures may induce inflation, expected to average just under 11% in FY25, they are essential for Pakistan’s economic survival.
Prolonged delays risk missing key performance targets, straining foreign exchange reserves, and exacerbating circular debt. If the EFF is not approved by September 2024, programme projections and criteria may become outdated, necessitating a fresh review by the IMF and causing further delays.
Conversely, favourable conditions, such as declining global commodity prices, offer a temporary reprieve. The Global Commodity Price Index has dropped 31% from its peak, and Brent crude is down approximately 17% in FY25. However, geopolitical instability remains a potential risk, particularly for oil prices.
Pakistan must act swiftly to capitalise on current favourable conditions and secure IMF approval to avert a severe economic crisis.
Using inflation as an excuse, the chief minister wanted to introduce a parallel policing and judicial system with vaguely defined powers. How long can they be held off?
By Abdullah Niazi
An attempt was made to hijack the machinery of the Punjab Government last month. It happened on a singularly unsuspecting day. On the 11th of August, lawmakers gathered in the provincial assembly for a special session to mark Minorities Day. The purpose, as described by Speaker Malik Ahmed Khan, was to have a general discussion on the rights of minorities and recognise their contributions towards Pakistan.
But there was another agenda item on the list. While lawmakers were busy giving generic speeches and providing the usual lip service, the assembly was introduced to the Punjab Enforcement and Regulation Bill 2024.
The government was trying to play it cool. The bill called for the establishment of a Provincial Enforcement Authority. It is simply going to be a tool at the disposal of the bureaucracy and the Chief Minister to enforce price regulation and help retrieve encroached land, they claimed.
According to the government, the authority would have a small cadre of officers that would report to the CM House and would have powers to inspect and enforce marketplaces, and ensure rates for commodities set by the government are being implemented.
Even in this initial, tame introduction the idea of such an authority is frustrating. It represents the worst of Punjab politics. The idea that the government can, without any consequences, set prices for commodities and force private traders in a supposedly free market to comply. There is also the assumption that such actions will convince voters to support whatever party is in power.
But the reality of this bill is far more sinister than plain old desperation politics.
A deeper reading of the draft bill reveals it is a vaguely worded, vain, overreaching piece of writing which, if passed, will prove to be a stain on the name of democratic legislation.
Using price controls as an excuse, already a terrible and historically rubbish economic strategy, the government wants to set up parallel policing and judicial institutions that will be loyal to the Chief Minister only. It means a new police force and new bureaucrats with magisterial powers. Essentially an entire government entity with the powers to police, investigate, arrest, bear arms, prosecute, adjudicate, fine, and imprison individuals in any kind of civil matter.
It would not just be limited to monitoring prices of commodities, but its reach would go to land disputes, taxation, private companies, and really any other business or individual they seem fit to target. In effect,
it would be a worse idea than the National Accountability Bureau (NAB).
Luckily for everyone, the legislation has been blocked for now. Objections in committee meetings from well meaning legislators both from the treasury and opposition benches have stalled the bill’s progression into becoming law. It also seems to have ruffled feathers among the Punjab Police, which fears a loss in relevance. But just how long can this be held at bay, and what could the consequences be? We start, of course, at the issue the government claims to be addressing with this: soaring prices.
A bit of history
In 1943, Britain was at war. Lord Wavell had just been appointed Viceroy of India, and upon assuming office received a directive from Churchill’s war cabinet telling him: ‘Your first duty is the defence of India from Japanese menace and invasion’. Few would realise the deep impact this simple directive was to have on economic policy and thinking in the Indian Subcontinent which persists to this day.
The new war priority of the colonial state often overrode its earlier law and order concerns. Every official, in every department of government, was meant to respond to the needs of the war effort. But this load stretched the resources of the state, preventing it from functioning normally.
As India supplied men and goods, the British became increasingly concerned with rebellion and unrest in the country. Prices were high, and inflation was reacting to the largest war the world had ever witnessed. New government posts and departments proliferated, employing very large numbers of people; new policies were announced; and new legislations were promulgated. A stream of ordinances was issued under the Defence of India Rules. There emerged an official grandly titled the Controller of Capital Issues; a less loftily named Supply Department; a policy of price control, a foreign exchange control, as well as control of imports and exports. Massive amounts of money had to be raised. Balancing the budget was forgotten, deficit finance undertaken
This was particularly evident in controls over food. The state in India undertook a huge new responsibility, which subsequently it could neither easily discard, nor properly fulfil. The first steps seemed innocent and innocuous enough. In an uncoordinated way, at local levels, government officials’ began to intervene in the grain market. For example, when grain prices began to rise in the United Provinces in 1941, anxious district magistrates began to impose price controls. Similarly, in 1942 in Punjab deputy commissioners were
empowered to fix maximum prices when they thought the situation demanded it. In Bengal, when the famine of 1943 hit, the government hastily constituted a Foodgrains Policy Committee, which recommended government procurement, rationing and price controls. Rationing was extended to cover sugar, edible oils, coarse cloth and kerosene, in addition to foodgrains.
By 1945, the war was over but the policies of the empire remained the same. The Indian Freedom Movement was at its peak, and in the tense times the British maintained their wartime policies. In 1947, it was this colonial era district administration system that both India and Pakistan inherited. A system in which bureaucratic administrators wielded the powers of not just judge, jury, and executioner, but also of investigator, enforcer, and complainant.
The excuse
There is a reason for the little history lesson above. Controlling prices was a policy introduced by the British during the second world war, and implemented through their network of powerful district commissioners. When Partition happened soon after, India and Pakistan took different approaches to what they would do with this bureaucratic network.
Guided by Nehruvian Socialism, India continued the wartime efforts of the British and made price controls and rationing an integral feature in its economic policies. Pakistan took a different approach. Instead of focusing on using the bureaucracy as an economic management tool, the country’s military leadership focused on using it to monitor and govern for law and order. Economic policy largely favoured free market principles.
Over the decades, habits such as managing exchange rates and foreign reserves are still prevalent in Pakistan but the British era relic of price controls have not so much been a feature of economic policy as they have been a tool for photo-ops.
The story is pretty familiar. You have the Chief Minister conduct a ‘surprise’ visit to a Ramzan Bazaar with the usual crowd of lackeys and protocol flunkies hot on their heels. The CM derides high prices, hears a few grievances, says a few random monosyllabic words about hoarding, and promises to bring down prices. The photographers of the Directorate-General of Public Relations (DGPR), the government’s PR arm, click away and press releases are forwarded to every newspaper known to man.
So when Maryam Nawaz expressed an interest in visiting bazaars, announcing reductions in prices, and doing the whole press talk works it was not too surprising. At best
it was her trying to be politically expedient given her party’s popularity problem. At worst it was plain old stupidity.
Controlling prices is terrible economic policymaking because of a few basic principles. The fear of inflation seems to dominate Pakistan’s discussion of many economic policies that have little to do with inflation or the cost of living. For example, both the public debate and the political debate over what prices the government should set for its agencies’ sales of wheat and fuels is dominated by a widespread belief that raising these prices, or using a flexible market-determined pricing policy, would cause inflation.
Look at it this way. Maryam Nawaz thinks the average voter that will determine her political future is poor and cannot afford basic commodities for their family. She decides she will, with a wave of her pen, cut prices down for certain commodities. But what is she hoping to achieve from this? In these conditions, the hope of the CM would be that people save money from this reduced price and buy other products. So if Maryam Nawaz has decreased the price of say cooking oil, people will try to use the money they save to buy more sugar.
This is the most basic problem with this: if the price set for cooking oil is lower than what the market will bear, the producers of cooking oil - who have to buy their raw materials from outside Pakistan - will simply not have enough money to buy what they need to make their product. There will be a shortage of the product, which the government will claim is because of “hoarders”.
Those hoarders do not exist. You know how we know that? Because everyone involved in supply chain management in Pakistan will tell you that the country has precious little storage capacity for any commodity. Where will these so-called hoarders put them? The problem is not that enough of the product is not being SOLD at those lower-than-market prices. The problem is that not enough can be PRODUCED at those prices.
This basic economic principle was generally understood in Punjab for a long time. Sure, every major supermarket has a DC rate
counter with exactly four bags of rice available, and there are still a few utility stores run by the Punjab Government, but largely the prices of commodities in marketplaces have been left to the whims of the free market.
Much of this attitude was fostered in Punjab during the 10-year, two-term, tenure of Shehbaz Sharif as Chief Minister. It may be hard to remember after his terms as Prime Minister, but the younger Sharif was once considered a competent member of the Sharif Brothers Duo. And sure, he was as fond of a good photo-op as anyone else. But the price control tendencies of his administration were very specific. There was the Ramzan Bazaar which used to be set up every year at a cost of Rs10 billion to the government, and there were the many different iterations of the Sasti Roti Scheme. Other than these, the government stayed away from giving its verdict on how commodities should be priced, leaving it to the devices of demand and supply. Large portions of subsidies were instead left for public transport, and still more money was being pumped into the development budget and infrastructure.
Which is why it was not alarming when Maryam Nawaz expressed her desire to have a tighter clamp on inflation, or at least for things to appear that way. But then lawmakers were blindsided. On the 11th of August, as we stated at the beginning of this story, the Punjab Enforcement Authority Bill was presented to the assembly.
What the government wants you to think the bill is
This is not anything new. The Pakistani bureaucracy, particularly the district administration, has long missed the powers they had in the bureaucratic setup that the British left behind. Many of their political, policing, and magisterial powers were stripped by reforms made by the Bhutto administration, and later by the 18th Amendment signed and enacted during the government of Mr Bhutto’s son-
This basic economic principle was generally understood in Punjab for a long time. Sure, every major supermarket has a DC rate counter with exactly four bags of rice available, and there are still a few utility stores run by the Punjab Government, but largely the prices of commodities in marketplaces have been left to the whims of the free market.
in-law. So everytime a new government comes to power, one of the complaints the bureaucratic machine brings up ad nauseum is their inability to ‘implement’ directives of the government because of their lack of powers. It was exactly this that led to the proposed Punjab Enforcement Authority.
When the Chief Minister expressed an interest in controlling prices, bureaucrats told her it would not be possible without extensive powers. The police do not listen to us so we cannot conduct raids ma’am, and even if they do we have no way to prosecute these people, and without punishment or imprisonment there is no way to implement the prices you want ma’am.
At least that is how we imagine the conversation to have gone.
As a high ranking source tells Profit, a team of bureaucrats delivered a presentation outlining what powers they wanted to be able to implement the CM’s vision. And Maryam Nawaz is too new at governing to know what proposals to trust, and which ones to reject.
Those are the sequence of events we reliably know of. What happened in between, whose idea this was, and how the bill came to be in the form it is in now are matters nobody seems to want to talk about. What we know is that the Punjab Enforcement Authority Bill was kept hush hush until the day it was presented.
On the day of its presentation, the government also claimed the authority was being created for “price controls, land grabbing, and other special assignments on the instruction of the government.” It would simply be another government institution that would be there specifically to enforce prices set by the government in different markets. So just your average lot of officers going around shutting down utility stores and Sunday Bazaars.
What the bill really is
The initial cause for alarm was over how vaguely worded the bill was. What did the government mean by any special assignments given on their discretion? Why was a law so vaguely termed? The wording made it seem like this authority would have a role to play far beyond just prices and encroachments. So when the bill went to committee, more things started to come to the fore.
The bill proposes the establishment of the Punjab Enforcement Authority, in itself a dystopia name that clearly indicates the desire to set up a parallel structure of government. The purpose of the authority would be to “oversee, spearhead and monitor the implementation of the policy guidelines issued by the Government.”
Sounds a little vague? It is.
The wording has deliberately been kept this way to allow this authority leeway to interfere wherever it feels fit. As one lawmaker who is also a practising lawyer tells us, this means the authority would have jurisdiction to “implement” government policies in marketplaces, on government land, but also over private businesses and individuals that they feel are going against government policy.
It gets worse. The authority is set to have a central board chaired by the Chief Minister, with the deputy chair being the Chief Secretary. The rest of the members of the board, with the exception of three MPAs and three private members appointed by the government, are all the secretaries of different departments, essentially a civil service majority. Underneath this board is an enforcement board in every single district of the province. These district boards are all chaired by that district’s deputy commissioner (DC) and his assistants.
These boards will all have under their authority and employ a number of different kinds of officers. The first in this structure will be enforcement officers. These will be individuals of Grade 18 or above responsible for different enforcement stations in every subdivision of every district.
These officers will be the main functionaries that will go around enforcing directives given under this bill if it becomes law. The powers of the enforcement officer will include conducting inspections and inquiries, registering FIRs, conducting investigations, making arrests, and issuing orders under the act, as well as recovering enforcement costs and penalties.
These officers will have an important economic function in terms of enforcing price controls, but they will essentially also have policing duties.
And it does not end there. Has an enforcement officer shut down your shop or made a raid on your place of business? Want to make a complaint? Well you are not supposed to go to a judge. Instead, you will go before a Hearing Officer. These officers also operate under the auspices of the Punjab Enforcement Authority, and will settle all matters investigated by enforcement officers. The bill includes provisions for Hearing Officers hearing cases related to fines, confiscation of carts, removal of any encroachments, and every other level of minor civil offence. It also has an overarching declaration to have the authority to hear any case that an enforcement officer may have picked up on.
Similarly, thes bill makes provisions for Investigation Officers with the power to “enter, inspect, search and seal any public property, building, place or any premises
where he has reason to believe that an offence has occurred or there is apprehension of so happening;and the power to enter, inspect, search and seal any private property, building or place, subject to warrant or order of the Magistrate in whose jurisdiction such premises is situated.”
They have also been given the power to “use reasonable force, in case of retaliation or obstruction in performing the functions under the Act, and the power to collect evidence through electronic means to inquire or investigate, such as CCTV camera recording; video recording; audio recording; photographs; electronic data; caller data records; geo-fencing; mobile device tracking; cyber surveillance and monitoring; digital forensics; and, Artificial Intelligence detection.”
On top of this, they will also have a corp of sergeants under their authority who will have the right to arms. If you have not caught on yet, the bill is proposing the setting up of a parallel government operating full with policing and judicial powers. This entire authority will report to the bureaucracy, and in turn be loyal to the Chief Minister alone who is the ultimate authority in this matter.
The answer is in the constitution
So this is what we have. The Punjab Government tried to create a parallel police force and a basic judiciary under a vaguely worded act in the name of trying to contain inflation. For now, Profit has it on good authority that the act has been blocked by some well meaning legislators as well as the lobbying efforts of the Punjab Police, which raised the points that it had jurisdiction to train and shore up an armed force of individuals from amongst its own ranks or to seek out more officers.
The reason this was necessary was because the Chief Minister and her gaggle of favourite bureaucrats seem more than happy to try and take as much power as they possibly can. Whether that is to police private individuals and businesses without any institutional scrutiny, or to control prices is besides the point. And while the bill has been opposed in committee and has been sent for review and editing, unless the vague wording is changed it will not matter.
What boggles the mind more than anything else is that as far as enforcement is concerned, there is a solution plain and simple within the constitution. Bureaucrats always claim governance is difficult because they do not have enough powers to enforce the law and directives of the government. That leads to anti-democratic ideas. But there
is an entire third tier of government missing in Pakistan that is required by the constitution: local governments.
Over time, the spirit of local government in Punjab has tried to take root and has been consistently thrown to the wind with very little regard. The details of all of the laws, their merits, demerits, and why they have not been implemented yet have been covered in great detail.
The crux of the matter, however, is that local government makes sense. We are not speaking here specifically of any local government acts that have been passed in Pakistan, but generally of a third tier of democracy as a concept. It is a more efficient administrative system and adds another tier to the democratic process, making accountability and access to said administrators a less arduous process than it currently is. It also allows communities to look out for and administer themselves in accordance with their own best interests, and leave legislators in the assemblies to the more important task of actually legislating instead of being caught up in gali mohalla riff raff.
But more than just being a third tier of democracy, having a local bodies system means having a new economic process. In essence, it is not just a new administrative stratification, but also involves the dispensation and spending of money. Things such as education and health that people automatically look towards the provincial government for would now be handled by local representatives. Perhaps most crucially, the ability of local governments to collect taxes and release their own schedule of taxation allows them to make their own money and spend it on themselves rather than waiting for the benevolence of the provincial or federal government.
Currently in Pakistan, the system that operates rather than local body governments is a bloated, vain, and self-contradictory bureaucracy where rather than elected representatives controlling local issues, the district is in essence the fief of a government appointed district commissioner (DC). This not just centralises authority, but means locals with a better understanding of the area’s politics and requirements are not in charge of decision making.
Empowered local governments offer a much better alternative. They are rooted in representative democracy, they offer good governance practices, some level of local economic management, basic services, and if the government is bothered enough to listen, they also offer local policing. The only problem is it seems the Punjab leadership seems more interested in establishing it authority more than any facade of “enforcement.” n
After a complete plummet, Pakistan’s cement industry is seeing healthy
margins again.
What prompted the comeback?
After plummeting to below 5% in 2020, the cement sector’s gross margins have surged back to 25% in 2023, but haven’t quite hit the highs of nearly 50% they had in 2012.
By Zain Naeem
In the high-stakes world of cement, where margins are as vital as the product itself, the industry has experienced a dramatic roller-coaster ride over the past decade. Once a powerhouse of profitability with gross margins peaking at 42.2% in 2016, the sector found itself grappling with margins that plummeted to a perilous 4.79% by 2020. It was a huge fall from grace in a very short period of time.
However, recent data suggests a robust rebound, with margins climbing to 25% in 2023. The turnaround is dramatic. And there is a reason we are looking so closely at the margins.
A price surge with a bumpy ride
Cement prices have experienced a remarkable journey. Back in July 2012, a 50kg bag of cement cost Rs 435. Fast forward to September 2024, and that same bag now commands Rs 1510—a staggering 2.5-fold increase over 12 years. Yet, this upward trend wasn’t smooth. For nearly a decade, from 2012 to 2021, prices fluctuated between Rs 500 and Rs 640. It wasn’t until mid-2021 that prices shot up dramatically, climbing to Rs 1500 in just three years.
The dramatic drop in margins during the pandemic years can be attributed to stagnant prices amidst skyrocketing production costs. Companies were trapped in a vicious cycle of maintaining prices despite rising costs, due to weakened demand during the pandemic. As economic activity resumed, so did the capacity to increase prices, helping margins bounce back.
Gross margins, reflecting the difference between production costs and sales prices, offer a snapshot of industry health. For the cement sector, these margins had been buoyant until economic disruptions took their toll. From 2011 to 2024, the price of a 50 kg cement bag rocketed from Rs 435 to Rs 1,510—an increase of 2.5 times. However, this price escalation was anything but steady.
Between 2012 and 2021, cement prices oscillated between Rs 500 and Rs 640. It wasn’t until mid-2021 that prices surged dramatically, reaching Rs 1,500 by September 2024. The initial price stagnation was partly due to the pandemic-induced slump in economic activity, which curtailed demand and prevented companies from adjusting prices in line with rising costs.
A crucial factor in the margin decline was the cost of production. Cement manufacturing hinges on two primary inputs: limestone and coal. Coal, a major expense, constituted 50-60% of production costs. In
July 2012, coal prices were $92 per ton. By August 2020, they had fallen to $50 per ton. However, this respite was short-lived. The outbreak of the Ukraine crisis in September 2022 saw coal prices soar to an unprecedented $430 per ton, driven by disrupted global supply chains.
Simultaneously, the Pakistani rupee depreciated sharply. The dollar, which traded at Rs 93 in July 2012, had surged to Rs 280 by September 2024. This depreciation eroded margins further, as the cost of imported coal surged despite falling global prices.
In response to skyrocketing coal costs, cement manufacturers initially hesitated to pass on the full impact to consumers, resulting in diminished margins. However, as coal prices stabilised and the dollar remained strong, companies began adjusting their prices upward to preserve profitability.
Despite the recovery in gross margins, net profit margins remain subdued compared to 2016. Back then, gross margins of 42% translated into net margins of 25%. By contrast, in 2021, a gross margin of 24% yielded a net margin of 14%, and by 2023, while gross margins had rebounded to 24.54%, net margins had shrunk to just 8%. This decline in net profitability is largely attributed to the industry’s increased debt burden. Following an expansion spree post-2016, many companies are now grappling with higher interest expenses, which
have eroded their net margins.
Domestic downturn
The cement sector’s vulnerability was compounded by its limited export exposure. With exports historically confined to Afghanistan and, more recently, expanding to the Middle East and beyond, local demand has been the primary driver. In 2012, domestic dispatches totalled 24 million tonnes, peaking at 40 million tonnes in 2020. As the domestic market slumped, so did dispatches, which fell to 48 million tonnes in 2021. The inability to lean on robust export markets left domestic prices under strain until demand picked up.
The industry’s cost structure has been heavily influenced by coal prices, which constitute up to 60% of production expenses. In July 2012, coal was priced at $92 per tonne. By August 2020, it had dropped to $50 per tonne but spiked to an all-time high of $430 per tonne by September 2022, largely due to the
global supply chain disruptions caused by the Ukraine conflict.
The subsequent drop in coal prices to around $141 per tonne has allowed cement prices to rise without a corresponding fall in margins. However, this is also where the interplay of currency depreciation comes into play. The Pakistani rupee’s value fell from Rs 93 per dollar in July 2012 to Rs 280 by September 2024. This devaluation has squeezed margins even when coal prices fell, as most coal is imported.
Margins and the debt factor
While gross margins have rebounded, net profit margins have struggled. In 2016, with a gross margin of 42%, net margins were a healthy 25%. Fast forward to 2023, despite gross margins holding at 24.54%, net margins have slumped to around 8%. The
discrepancy is largely due to increased debt and interest expenses, a legacy of the industry’s aggressive expansion post-2016. Interest costs have surged from 1% of sales in 2017 to over 5% by the end of 2023, eroding net profitability.
Looking ahead
As the cement industry navigates these turbulent waters, the recent recovery in margins indicates a sector adapting to its challenges. With falling coal prices and a stable dollar, companies have managed to claw back much of their lost ground. Yet, the lingering effects of debt and currency fluctuations suggest that the journey to fully restoring previous profitability levels remains ongoing.
In essence, the cement industry’s recovery is a testament to its resilience and adaptability, showcasing a sector that, despite significant headwinds, has managed to capitalise on improving conditions and turn the tide back in its favour. n
The myth of Pakistan as a trade corridor needs to die
China has no use for Pakistan’s infrastructure. It must be built by Pakistanis, using Pakistani money, and for Pakistani needs.
By Farooq Tirmizi
There is not a single product in the world that, at any point in its supply chain, needs something moved from Kashgar to Karachi on its journey from its point of manufacture to its end market. Which means that Pakistan can never be a trade corridor and, more specifically, it is not in the interest of any country to finance Pakistan’s infrastructure other than Pakistan itself.
This issue has been resurfacing in recent months because of the renewed conversation around whether or not it makes sense for the government of Pakistan to invest in the construction of the upgrades needed to the Main Line 1 (ML-1) railway corridor that runs from Peshawar to Karachi after the Chinese government’s latest (of many) refusals to finance the project on anything other than purely commercial terms.
There are many arguments for and against the project itself, and having that
debate is healthy for a republic to engage in. What is not healthy is for the government of Pakistan to so completely lack self-respect that they assume that the only way a major infrastructure project in Pakistan will ever be completed is if it is in the interest of some major foreign power.
We would like to disabuse the government of Pakistan of all such notions. There is no foreign power whose interests are served by infrastructure being built in Pakistan. We want to lay out the case that, despite all the protestations to the contrary of a large number of people in Islamabad, Pakistan does not have a “strategic location”. And Pakistan cannot become a “trade corridor”. If economic progress is to happen in Pakistan, it will be because we choose to make it happen, using our own resources, and based on our own needs, not those of foreign governments.
But first, let us start with why this idea of the “strategic location” – and the attempt at a more sophisticated iteration that is the “trade corridor” concept – so popular among decision-makers in Islamabad in the first place.
Like the railway that made this conversation relevant, the story starts with the British.
Origins of the idea
“He sat in defiance of municipal orders, astride the gun Zam-Zammeh, on her old platform, opposite the old Ajaibgher, the Wonder House, as the natives called the Lahore Museum. Who hold Zam-Zammah, that ‘fire-breathing dragon’, hold the Punjab, for the great green-bronze piece is always first of the conqueror’s loot.”
That is the opening paragraph of Kim, the 1901 novel by Rudyard Kipling that is set in the context of the Great Game of Central Asia. Probably more than any other literary work, Kim popularized knowledge about the existence of the cold war between the Russians and the British fought from around 1801, when the Russian Empire started conquering what are now the Central Asian republics, and lasting until 1907, when Britain and Russia formally signed the Anglo-Russian Convention that delineated each of the two empire’s
respective spheres of influence in the region.
The gun referred to in that paragraph from over a century ago had been in that position for about half a century at the time those words were written. It is still exactly there.
And while it is sometimes called the Great Game of Central Asia, it has been understood by anyone who has ever played the game that the prize in it is not control over Central Asia, but rather control over Punjab and Sindh, which themselves are deemed to have value as the gateway for northern invaders to control India.
In that sense, the Great Game well and truly died at midnight on August 14, 1947 when India and Pakistan were partitioned and control over Punjab and Sindh no longer served as entry into India.
Sadly, the cold war between the United States and the Soviet Union occasionally touching affairs in our region meant that Pakistani decisionmakers began to fancy themselves as the new players in a game that was still somehow relevant. This thought process, prevalent even from Partition onwards, was given a special boost after the 1979 Soviet invasion of Afghanistan.
What followed over the next four decades is by now well-trodden history in Pakistan, so need to revisit it, but suffice it to say that the notion that Pakistan can parlay occasional interest from global powers in our part of the world into money for the country is an exceedingly attractive one for our political and military elite, because they view it as a shortcut that precludes the need for them to address any of the country’s actual problems and instead just paper over them with free money from abroad.
To their credit, it worked for almost three decades of the country’s history.
But it cannot form the basis of a sustainable economic strategy for the country, and it is most certainly not in China’s interest to develop the railway line from Peshawar to Karachi.
The impossible physics of Pakistan as a trade corridor
Why Pakistan can never become an overland trade corridor is because of the same reason that there is no such thing as a major overland trade corridor anywhere on earth anymore: the physics of transportation.
Here is one very relevant fact that destroys the notion that such a trade corridor is even possible: it takes less fuel to transport a 20-foot container over half the diameter of the earth (meaning you could go between any two ports in the world) than it does to drive that
container on the back of a truck from Karachi to Islamabad. Ships are just way more efficient than trucks and about 15 times more efficient than trucks in transporting goods.
Railway is better, of course, and about 3.4 times more efficient than trucks, and electric trucks may close the efficiency gap between trucks and rail, but there is no known technology that looks like it will close the massive chasm between ships and land-based transport of any kind when it comes to energy efficiency. That means that overland routes will always be a less efficient option than seabased routes. By a lot.
So it does not even matter if it is Iran, Central Asia, or Russia trying to trade with India, or China trading with the Gulf Arab states. Pure physics suggests that it will always be cheaper to just load things onto a ship than to load them on a truck or even a railway car – and there are no railways for thousands of miles of these so-called trade corridors. Technology is not quite at the point where we can build railway lines across the Himalayas.
The only country that benefits from Pakistan creating a more efficient railway line from Peshawar to Karachi is Pakistan. It serves the needs of absolutely no other country in the world.
There is no scenario under which India would conceivably cede control of even part of its supply chain to Pakistan. The temptation for mischief is too high, even if relations between the two countries improve significantly from their current abysmal state.
There is one, semi-plausible-sounding reason why Beijing might want to build a backup to its ocean routes, but as Pakistan is about to find out, for some very good reasons, Beijing no longer believes it needs that backup, and certainly not one that would be as expensive as trying to trade with the Middle East by loading trucks and sending them across the Himalayas and the entire length of Pakistan.
The great weakening of Pax Americana
The only reason Beijing would need to build overland backups to ocean trade routes is if it believed that the United States would try to lock out China from global free trade on the oceans. And as has been made abundantly clear from the complete failure of the United States to revive its ship-building industry, China now has good reason to believe that the dominance of the United States Navy over the world’s oceans is at the very least severely weakened, perhaps even permanently.
The Chinese Navy now has the largest number of ships in the world: 1,015 ships compared to 364 owned by the United States Navy. US naval ships are bigger and more
effective fighting vessels to be sure. The total tonnage of China’s entire naval fleet is just over 2 million tons, compared to 3.6 million tons for the US Navy. The US Navy is still bigger and more powerful, but the gap has narrowed very significantly over the past decade and keeps getting narrower with every passing year.
China does not have the ability to threaten the US mainland with its navy, but it has developed enough strength to feel confident that it will not be pushed around by US naval strength. The threat of narrow sea lanes such as the Straits of Malacca or the Straits of Hormuz being blockaded for Chinese shipping traffic by the US Navy is no longer something China believes it needs to worry about.
What does all this have to do with Pakistan? It means the overland backups that China was developing for its previous vulnerability on the open seas are no longer needed. Notice the refusal of China to listen to any “strategic” arguments in favour of even refinancing loans for projects part of the China-Pakistan Economic Corridor (CPEC), let alone actually forgiving any debt.
China no longer has use for Pakistan, and so Pakistani pleas about the “strategic advantage” of any project will fall on completely deaf ears in Beijing.
What next for ML-1?
So what exactly is the ML-1 project? It is an $8.4 billion upgrade of Main Line One (Torkham to Karachi), which aims to improve tracks, signals, locomotives, and other infrastructure that would allow trains to increase their average speed up to 160 kilometres an hour for passenger trains and 120 kilometres an hour for cargo trains.
Those speeds may not sound very high, but consider the fact that the Khyber Mail currently goes from Karachi to Peshawar at an average speed of less than 54 kilometres an hour, meaning that the journey takes 32 hours. At 160 kilometres an hour, that journey would take 10 hours and 45 minutes in train time alone. Adding in time for stops along the way should still result in an express train being able to do a Karachi to Peshawar journey in close to 12 hours.
The government of Pakistan views this project as essential for the next phase of Pakistan’s economic development and it will certainly help make more export-oriented industries possible in more parts of the country relative to today. But since nobody else cares about that, the financing for this will have to be on standard commercial terms, not the kind of concessionary terms that might be expected for a project that had significance for a foreign power.
Should we still build this project? Probably. But because we need it, not because it will serve anybody else’s needs. n
Why is the PTA suddenly so big on monitoring VPN traffic and how complicated is it for the user and for the PTA itself?
By Shahnawaz Ali
Among the sea of information released by Edward Snowden in his infamous data leaks, it emerged that the National Security Agency (NSA) of the United States considered Pakistan the second most surveilled nation in the world.
This implies that Pakistanis are more susceptible to surveillance not just from their own government but also from right under the nose of the said government. This also means that Pakistan’s national level cybersecurity is not only compromised but may possess serious flaws.
So how does a common Pakistani counter this problem? An obvious solution comes to mind and that solution is changing and masking your IP address. A common tool employed by many for this purpose is called a Virtual Private Network (VPN). Now this could be reason enough, there is more than one way in which changing an IP address can benefit a user.
Yet for the most part, VPNs in Pakistan are used to bypass bans. Perhaps nothing is more blatant in this regard than the ban on Twitter. The government has blocked access to the social media platform in the country, but everyone gets across the block through a VPN. This is true even with government officials and politicians, who run their own accounts from behind a paywall.
That is why, perhaps, the PTA has hinted at banning VPNs all across Pakistan. While the statement was later retracted by the PTA chairman, Profit delves deeper into how such a step can be orchestrated? Is it even possible? How? and what impacts could it have on the day to day business in Pakistan?
How do VPNs work?
While some of the more technologically astute readers would already be aware of the purposes a VPN serves, following is a simple explanation for the readers who do not:
Think of the internet as a busy public space where anyone can see what you are doing—like browsing websites, sending emails, or making transactions. Without protection, your online activities can be monitored by others, including hackers, advertisers, or even government agencies.
A VPN creates a secure tunnel, of sorts, between your device and the internet. This means that when you connect to a VPN, all the
data you send and receive is encrypted, meaning it is scrambled into a code that is difficult for anyone else to read. This keeps your online activities private and prevents unauthorised access to your personal information, such as passwords, banking details, and other sensitive data.
Additionally, a VPN masks your real location by changing your IP address. IP address is a unique number that identifies your device on the internet. For example, if you are in Karachi but connect to a VPN server located in London, it will appear as though you are browsing from London. The VPN changes your IP address by routing your internet traffic through one of its servers, which is located at a different site in the world. This server gives you a new IP address, masking your real IP address and location. This feature is the reason why VPN use allows users to access content that might be restricted in their actual location, such as certain websites, or online services.
The usage of VPN is done either for the protection of one’s privacy or for enhanced security or by bypassing one’s geographical location. VPNs are especially vital for businesses for safeguarding confidential information and ensuring secure communication for remote employees.
Usually, VPN service providers charge money to their consumers, however there are free VPN service providers in the market, which make money by either selling user data or displaying ads or both.
How can VPN traffic be monitored?
Apart from many users wanting to access blocked content or wanting to mask their activities, VPNs have a strong case for businesses. Many overseas call centre businesses as well as software houses use VPNs to emulate the IPs of countries in which they are selling their services. Big companies with overseas employees also have specific virtual networks for employees overseas to ensure that the company data remains on their secure servers and is not compromised.
The PTA has categorically stated that it understands the use case of VPNs by businesses such as software houses and other businesses and it does not want to curb the legitimate use of VPN. So it came up with an ingenious solution in 2020.
Earlier in 2020, the PTA provided corporate businesses with this opportunity for the first time, asking them to register their IPs that they would mask via VPN. Later in 2021,
it provided another few days’ window to small businesses to comply with this registration.
The question is, why did the PTA, all of a sudden, want people to register VPNs? The pretext was to stop illegal telephony traffic (VoIP) which caused losses to their licensees and the national exchequer in terms of revenues and taxes. At least this is what the PTA said at the time.
Now after a series of internet blackouts and banning of social media websites, at a time where the functionality of VPNs has become more vital, the PTA has once again asked businesses, companies and freelancers to register, this time by submitting the details digitally.
According to a recent briefing to the senate’s standing committee on cabinet secretariat, the chairman PTA Major General (Retd) Hafeezur Rehman around 20,500 VPN using IPs have been registered and once the process is complete, only the whitelisted IPs will be allowed to use VPN while the “illegal” use of VPN would be stopped. In the same briefing he also pointed out that the overall user base of X had decreased since the ban despite a surge in the number of VPN users who are trying to access X.
There are a number of things wrong with the chairman’s statement. First of all, what is the illegal use of a VPN? As of right now, the use of VPNs without registering it with the PTA is not considered illegal by law. It is not in the penal code and there is no specific punishment for just the use of VPN. Does that mean that Pakistan will introduce a criminal penalty on unsanctioned VPN use once the registration process is over?
A digital rights organisation “Bolo Bhi” in a 2020 article states that “Pakistan has an extensive history of cracking down on dissidents through enforced disappearances, narrowing down patriotic definitions to put individuals at risk, & delivering mob justice upon accusation. VPN registration can be misused to increase & legitimise instances of such nature in the future.”
It is important to note here that other countries that have such laws include the likes of North Korea and Turkmenistan.
Secondly, up until now it was being assumed that the VPN registrations had to do with the curbing of VoIP traffic. Why then is the question of X usage relevant in the chairman’s briefing? The question is telling in itself what the state has in mind.
And thirdly, how will they block the non-whitelist VPN user? According to a senior stakeholder at an ISP who wishes to remain anonymous, the PTA does not currently have the capability of doing that. The Web Monitoring System (WMS) that Pakistan currently
possesses to monitor and sometimes block traffic, is not efficient in the surveillance or even the identification of encrypted traffic. For that purpose, Pakistan needs something more potent. A technology often termed as Deep Packet Inspection (DPI). Hence in saying that Pakistan will block unauthorised VPNs, the chairman actually does reveal the acquisition or presence of some form of the rumoured DPI (firewall) technology similar to China’s.
Can VPNs be Blocked?
While talking to Profit, one of the sources who is an internet governance expert and wishes to stay anonymous stated that, “It is tough to ban VPNs. Bans are countered with the resilience of the digital ecosystem all over the world. The China Firewall is almost 20 years old and VPNs, while technically legal, are tricky to use due to extreme surveillance. But VPNs are still used.
Complete ban might not be possible even if a particular VPN service and or VPN ports are blocked, the VPN landscape is also very rapidly evolving. The decentralised VPNs eliminate the need for centralisation so it is very hard to track and monitor.”
But that is one aspect of this conundrum. Even with a highly sophisticated DPI, blocking VPNs is not a piece of cake. The possibility comes with additional risks. Risks that Pakistan is especially vulnerable towards.
To understand this, let us look at what we learned earlier. What does a VPN claim to do? It provides you a safe pathway into the worldwide web without the fear of a security breach or someone spying on your browsing activity.
As sanctioned as it may be, this spying has no exception for the state itself. So any VPN worth its salt is basically rated on how well it hides you, even from your own government. In some cases, especially from your own government.
While it can hardly be said for any country that a full blown VPN blockade works over there, there are countries that have had some success in controlling the use of VPNs. These countries include China, Saudi Arabia, North Korea, Turkey and UAE etc.
Most of these countries not only pose a high penalty on people who use VPNs but also employ a number of techniques to keep VPNs at bay. By embedding DPI capabilities into the network’s infrastructure, ISPs can detect specific patterns associated with VPN protocols, such as OpenVPN, L2TP, IKEv2, etc. This enables them to block, throttle, or disrupt VPN traffic as soon as it is detected.
Moreover, a lot of these countries that have some success in blocking VPN traffic, possess a centralised internet gateway. If a gov-
ernment controls the gateway entirely, it can block VPN traffic from entering or leaving the country. The problem for PTA is that it simply does not have that kind of centralised control. While it can impress upon the ISPs or the telcos to do its bidding, for these (mostly) private entities to bear this additional burden would require legislation.
However, there is a slight apprehension in this assessment. The Pakistan Electronic Crime Prevention Acts of 2016, allow the PTA to issue directives to these companies to block or remove content if it is deemed obscene, defamatory, blasphemous or threatening to national security. But even if the PTA is able to use this excuse, it does not get to fully stop the rogue VPN traffic.
Successful VPNs use stealth techniques like obfuscation and domain fronting. A simple way to put it would be that the traffic simply doesn’t get recognised as VPN traffic.
Even if it is possible to identify VPN traffic, in a system like Pakistan’s it becomes very difficult to attribute it to the host (user device) making it difficult to administer punishment, if any.
Mostly, governments resort to simpler solutions like blocking domain or known VPN IP at network level. They can also make a white list of government approved IPs to access VPN, which is what PTA seems to be doing. Needless to say, these protocols can easily be circumvented by a VPN using various techniques. VPN providers can have rotating IPs themselves or use technologies like server hopping wherein the traffic switches between multiple servers in quick succession.
Sometimes, governments can even have VPN service providers on board and would only allow the use of those VPNs that have agreed to share user data, while other times, they can ingeniously make their own VPNs which the desiring national can use, knowing that their data can be viewed by the government at the very least.
To answer the question on the top is, Yes a VPN can be blocked but no it cannot be absolute. That is one of the reasons why countries like the UAE, where VPN usage is banned and apps like Whatsapp are closed, are also some of the biggest markets for VPN service providers. According to Forbes “62% of the United Arab Emirates (UAE) population downloaded a VPN in 2023” making it the world’s second most adoptive VPN market.
The problem is, if Emirates Telecom (e&), worth more than $40 billion USD cannot do much about it, PTA surely cannot.
Complications in blocking
There is however one thing that PTA can do, and that is to make things worse. The GoPs network security hasn’t always been great.
As pointed out by Dawn in a latest news piece, citizen data from NADRA, including personal details of citizens, has previously been up for sale on social media platforms. The National Telecommunications Corporation (NTC) , a company responsible for providing communication channels and data services exclusively to government organisations, has often had question marks on its server security.
Typically the government does not have access to the IP addresses of individuals, that data is maintained by the ISPs who are provided a range of IPs to distribute among customers. However, as soon as IPs are registered, the government gets that data and it gets stored somewhere on the servers designated for PTA.
If a hacker were to gain access to that data, not only will it risk businesses, but can cause serious financial damage. Such vulnerability hence seems like a large price to pay for curbing politically dissenting voices.
While talking to Profit, a tech business owner stated that, “If a small business is a tech business that needs a VPN to connect it is severely impacted by these bans. However I see a bigger impact on businesses that thrive on and use digital marketing for promotions and selling. For the 5 million SME in Pakistan, digital platforms are the most ideal to market.
With the slowing down of some apps and the restrictions of VPNs there have been incidents of a lot of SME and digital marketing companies losing out on business. The intended audience is not being reached out to on specific platforms and that just leaves these businesses leaps and bounds behind the competition.”
In principle, it must also be noted that whether the people prefer it or not, the state does need some form of surveillance to avoid crimes of various nature. It is just the lack of information regarding these systems and the closed doors on what the fate is going to be that makes matters so much worse.
As one of our sources pointed out that “Dubai has registered and allowed VPNs and that has not discouraged them to do business there. In India too VPNs need to be registered, and they even passed a law where all VPNs operating on servers inside India will have to store their data for 5 years.
I feel the business environment and the associated issues are much bigger than VPN registration. For the time being the registration might support the business. How much monitoring and surveillance happens though is an issue that time would tell. It is internet shutdowns, complete blackouts and uncertainty that harms businesses more than monitoring does.” n
Pakistan’s auto industry may soon need to abide by standardssafety
In the absence of a domestic testing facility, MoST wants overseas type approval for vehicular safety. Auto Manufacturers do not seem to like the idea.
PBy Ghulam Abbas
akistan’s domestic auto industry might soon face a safety reckoning, as the government looks to enforce international standards without the crucial infrastructure to do so at home. Without a local testing facility, the Ministry of Science and Technology (MoST) is pushing for vehicles to be inspected overseas, a proposal that is rattling local automakers.
For years, consumers have driven vehicles that are not subject to third-party safety checks before or after assembly. While Pakistan’s auto sector has been churning out cars for decades, none of them fully comply with global safety standards. While some institutions are technically responsible for overseeing vehicle safety, they have been asleep at the wheel.
This neglect has persisted, despite Pakistan signing on to the WP.29 treaty in 2020—a global pact designed to harmonise vehicle regulations. Yet, since signing, local automakers and regulators alike have dragged their feet. Manufacturers argue the country does not have the necessary testing facilities, while the government’s oversight body, the Pakistan Standards and Quality Control Authority (PSQCA), admits it is ill-equipped to enforce the rules.
Still, the government is looking for a workaround.
The WP.29 treaty: a global benchmark
Pakistan ratified the United Nations treaty on “Adoption of Harmonized Technical Nations Regulations for Wheeled Vehicles, Equipment and Parts which can be fitted and/or used on Wheeled Vehicles and the Conditions for Reciprocal Recognition of Approvals Granted on the Basis of these UN Regulations”, adopted at Geneva on 20 March 1958. The agreement finally entered into force for Pakistan on April 24, 2020 after enough signatory ratified it.
The UN Economic Commission for Europe (UNECE) World Forum for Harmonization of Vehicle Regulations (WP.29) is a unique worldwide regulatory forum within the institutional framework of the UNECE Inland Transport Committee. Three UN agreements, adopted in 1958, 1997 and 1998, provide the legal framework allowing contracting parties (member countries) to attend the WP.29 sessions to establish regulatory instruments concerning motor vehicles and motor vehicle equipment.
Pakistan’s ratification of the WP.29 treaty, under the United Nations Economic Commission for Europe (UNECE), in April 2020 was supposed to be a game-changer. The agreement, signed by over 50 countries, sets rigorous standards for vehicle safety, emission
control, and environmental protection. But for Pakistan, the problem is that there’s no domestic facility to enforce these global standards.
The Auto Development Policy (ADP) 2016-21 aimed to establish local testing facilities, but nothing materialised. Now, PSQCA is eyeing a new solution—having vehicles inspected overseas, and they’ve already sent out feelers to countries like China, the UK, and Japan for potential partnerships.
A long-awaited overhaul
In a recent move, the PSQCA proposed sending locally assembled vehicles for testing abroad, a first for Pakistan. The plan, submitted to the Prime Minister’s Office, outlines a framework for testing vehicles in third-party facilities in foreign countries. But this idea has not gone down well with the local auto industry.
Industry insiders say automakers are poised to resist this shift, claiming it is not practical. Some argue it is an attempt by the government to delay enforcing safety standards altogether. Local car manufacturers, already unhappy about the costs, have been lobbying to delay the WP.29 compliance for at least another year.
The key sticking point? Many of the safety features mandated under WP.29—such as anti-lock braking systems (ABS), tyre pressure monitoring systems (TPMS), and daytime running lights (DRLs)—are not standard in most Pakistani cars. Automakers, instead, market them as luxury features, adding a hefty price tag.
Testing standards abroad
To address the absence of local infrastructure, Pakistan is considering a Type Approval Scheme—a system where a new vehicle model is tested once before hitting the market, instead of requiring each individual unit to be tested. PSQCA is set to play a critical role in revising existing rules to accommodate this system.
Under this scheme, cars would be inspected overseas, with certification valid for the entire model’s production run. This would, in theory, reduce costs for manufacturers, but auto firms remain sceptical. They argue the logistics and expenses of sending vehicles abroad for testing would only push up prices further.
PSQCA, however, is pushing ahead. It is exploring Mutual Recognition Agreements (MRAs) with international testing bodies, which could lower costs and simplify the process for manufacturers. But local auto firms fear this could lead to more bureaucracy, higher fees, and delays in bringing new models to market.
Resistance from the industry
Despite MoST’s outreach, automakers claim they have been left in the dark. The Pakistan Automotive Manufacturers Association (PAMA) has voiced concerns over the lack of consultation, and manufacturers worry they’re being handed a raw deal. One industry executive, speaking on condition of anonymity, expressed frustration: “The industry hasn’t been consulted properly. We need our own testing facilities, like India has, to build a self-sustaining industry.” The executive pointed to India’s robust testing infrastructure, which has helped turn it into a global powerhouse for motorcycle and three-wheeler production. Without similar infrastructure, the executive warned, Pakistan’s auto sector will remain dependent on foreign economies and struggle to compete globally.
Another industry insider echoed these concerns, arguing that outsourcing testing to foreign laboratories would be a logistical nightmare. “Sending cars abroad for testing, paying fees, and covering manufacturing costs will push up prices for consumers,” the source said. Worse, without a recognised local certification system, Pakistani cars would still face export barriers.
The role of the
Engineering Development Board
(EDB)
Meanwhile, the Engineering Development Board (EDB), a body under the Ministry of Industries, is backing the auto manufacturers.
The EDB has reportedly tried to wrest control of vehicle safety inspections from PSQCA, advocating for a more industry-friendly approach. MoST officials, however, insist that PSQCA is the country’s designated authority on vehicle standards.
Critics claim the EDB’s interference is an attempt to shield automakers from the full force of international regulations. With the local auto industry already lagging behind global safety standards, many fear that Pakistan risks being left further behind in an increasingly competitive global market.
The next few months could be pivotal for Pakistan’s auto industry. If the government pushes through with its plan to enforce WP.29 standards via overseas testing, manufacturers will have to adapt—or resist. Either way, the days of lax safety oversight in the country may finally be numbered. But whether the solution lies in costly overseas inspections or the development of a domestic testing facility, one thing is clear: the status quo is unsustainable. n
Is it too early to celebrate the cut in the policy rate?
Central bank cites positive indicators, but experts warn of underlying challenges
By Ahtasam Ahmad & Mariam Umar
As the State Bank of Pakistan (SBP) Governor announced a significant 200 basis point cut in the policy rate, bringing it down to 17.5%, his composed demeanour reflected growing confidence in Pakistan’s improving economic indicators. However, beneath this veneer of optimism lies a complex reality: while progress is evident, the nation is not yet fully out of troubled waters.
A measured step towards economic stability
The decision to lower the policy rate stems from a cautiously optimistic view of Pakistan’s economic landscape. Recent developments point to progress in stabilizing the economy, with signs of potential sustainable growth on the horizon. A key factor driving this optimism is the assessment that underlying inflationary pressures are subsiding, a result of the previously tight monetary stance and ongoing fiscal consolidation efforts.
Notably, the pace of disinflation has surpassed expectations, partly due to delayed adjustments in gas and electricity prices. The international oil market has also seen favorable movements, though there’s an acknowledgment of the inherent uncertainty in these developments.
Several key economic indicators have shown improvement in recent months. Inflation has fallen more sharply than anticipated, providing relief to consumers and businesses alike. The SBP’s foreign exchange reserves have maintained stability at $9.5 billion, a positive sign given the weak official foreign exchange inflows and ongoing debt repayments.
Government securities’ secondary market yields have seen significant decreases, indicating growing investor confidence. Business sentiment has also shown improvement, although consumer confidence has seen a slight decline. It’s worth noting that FBR tax collection during July-August 2024 fell short of the target, highlighting ongoing fiscal challenges.
Shifting dynamics in money supply
An interesting trend is emerging in Pakistan’s currency circulation. Currently at Rs 8.8 trillion, the amount of currency in circulation is decreasing. As a percentage of GDP and money supply, it has hit a 10year low, although it still remains higher than desired. This shift can primarily be attributed to high interest rates offered by banks, incentivizing deposits and potentially indicating a gradual move towards a more formalized economy.
Source: JS Research
Oil prices: a key factor in stabilisation
Central to the subdued inflationary pressures was the global oil market’s recent plunge. Oil prices, after peaking in early 2024, have declined by roughly a fifth since, hitting a 15-month low of $72.9 per barrel. This price point is among the most favorable seen in the past three years and closely matches the five-year average. This downward trend is particularly beneficial for Pakistan, given its status as a net
oil importer. The petroleum industry is a major component of the country’s trade balance, representing about 30% of imports and 55% of export earnings. Furthermore, oil prices directly affect the transport sector, which accounts for 6% of the inflation index.
The ongoing easing of inflationary pressures has brought the headline CPI back to single digits for the first time in three years. This shift has paved the way for the first monetary easing cycle in four years. While the recent oil price reductions have started to impact the CPI, with petroleum product prices dropping by about 5% over the past six months, the full ripple effects of these decreases have yet to be fully reflected in economic indicators.
Independent economic analyst AAH Soomro expects the global economic slowdown to push down commodity prices this fiscal year. “I think oil will probably stay below $70 per barrel for the next six to nine months, mainly due to concerns about the slowdown in China and the growing divide between the West and China. Barring only political unrest in the Middle East, the market is likely to remain bearish,” he remarked.
Navigating External Financial Challenges
Despite some positive indicators, Pakistan’s external financial outlook remains complex. For the fiscal year 2025, the country faces a financing gap of $26.2 billion, comprising $4 billion in interest payments and $22 billion in principal. While $16.3 billion is anticipated to be refinanced or rolled over, a substantial $10 billion will require repayment.
A recent encouraging development is the International Monetary Fund’s (IMF) confirmation that Pakistan has secured commitments for an additional $2 billion to address the remaining external funding shortfall. This progress is vital in reinforcing confidence in Pakistan’s capacity to fulfill its international financial obligations.
The SBP maintains an optimistic stance on foreign exchange reserves, forecasting them to reach $12 billion by March 2025’s end STATE BANK
and further increase to $13 billion by the close of the fiscal year. Should these projections materialise, they would markedly enhance Pakistan’s external financial stability and provide a cushion against potential future economic shocks.
The Complex Dynamics of the Pakistani Rupee
The relationship between the exchange rate (USD/ PKR) and interest rates in Pakistan doesn’t follow the typical negative correlation seen in many economies. This anomaly is due to the strong counter-impact of other macroeconomic factors such as inflation, current account deficit, and political and economic instability.
to recovery following the 2022/23 crisis, while simultaneously addressing delicate security issues.
Historical analysis shows that a controlled current account deficit of around $100 million or less frequently resulted in the domestic currency appreciation against the USD. However, several other factors could influence currency movement, including global interest rates and timely approval from the IMF’s board.
The latest Real Effective Exchange Rate (REER) reading stands at approximately 102, suggesting that the currency is close to equilibrium in the context of the base year. Expectations of a rate cut in the US could lead to USD depreciation in the coming months, potentially helping maintain Pakistan’s REER at a suitable level.
Political stability
Despite economic improvements, the country’s political landscape remains a key concern for its economic future. The latest BMI Pakistan Country Risk Report for Q4 2024 underscores the persistently high political risk expected to continue through 2024 and 2025.
The current administration, lacking widespread popular backing, faces the formidable task of steering an economy on the path
In BMI’s Political Risk Index, Pakistan scored 60.6 out of 100, with notably low marks in the Governance category (42.8 out of 100). The government grapples with significant challenges in balancing interests between more progressive urban areas and conservative rural regions, and managing tensions between Punjab and smaller provinces.
“Problems occur when the government takes actions and decisions that, while popular with the public, can be detrimental to the economy. We saw one glimpse of it in Punjab when subsidy on electricity was announced”, Yousuf Farooq, Director of Research at Chase Securities told Profit. This decision was rolled back when the IMF objected.
A Delicate Balancing Act
As Pakistan navigates its economic recovery, the recent policy rate cut by the SBP signals cautious optimism. Improved economic indicators, particularly in inflation and the external sector, provide some breathing room for policymakers. However, the nation’s economic stability remains precariously balanced against persistent challenges.
“It seems like smooth sailing from here if Pakistan enters IMF program. Pakistan’s problems have arisen primarily because of the government’s spending. Increased government spending results in huge fiscal deficits. Those large deficits lead to pressure on the external account, resulting in pressure on the rupee. If the government keeps spending under control, everything will be fine and the economy will eventually start to grow”, said Farooq.
The positive trends in money supply, favorable oil prices, and a stabilizing external situation offer hope for sustained recovery. Yet, the complex dynamics of the Pakistani rupee and, most critically, the looming specter of political instability continue to pose significant risks.
Maintaining this delicate economic balance will be crucial in the coming months. The government and central bank must implement prudent policies while addressing key structural issues. Priorities include restructuring debt with China, reviving consumer confidence from its current low, accelerating the delayed privatization agenda (particularly for Pakistan International Airlines), attracting foreign direct investment, and enacting meaningful energy sector reforms.
Equally important will be efforts to foster political stability and improve governance – factors that are essential for long-term economic prosperity and investor confidence.
While recent developments provide cause for cautious optimism, it’s clear that Pakistan’s journey towards sustainable economic stability is far from over. n
