Pakistan Prosperity Index – August 2021

Pakistan Prosperity Index increases by 13%

As per PRIME’s latest report, Pakistan Prosperity Index (PPI) has increased by 12.8% on account of improvement in business activities. PPI is an agglomeration of trade volume, lending to private sector, purchasing power and manufacturing output indices. The trade volume witnessed an increase of Rs.548 billion Y-o-Y and Rs.360 billion M-o-M on account of resumption of business activities and opening up of international markets.
The private sector borrowing from banks showed a continuous surge with Rs.170 billion Y-o-Y and Rs.25 billion M-o-M increase. This increasing trend can be credited to lower cost of borrowing and a reduction in the budget deficit, which has reduced the government’s borrowing needs from the commercial banks thus reducing the crowding out effect.
In the context of purchasing power, the Y-o-Y Inflation was reported at 9.7%, while the M-o-M inflation clocked at negative 0.3%, a manifestation of improvement in purchasing power. The prevalent high levels of inflation are at the back of hike in food and energy prices.
Large Scale Manufacturing (LSM) increased by 4.36% M-o-M. This increase can be attributed to the higher demand emanating from ease in lockdown, mass vaccination and opening up of business. In addition, higher production cost fueled by higher energy prices, and supply side disruptions of raw material all had a fair share in restricting LSM’s output. Notwithstanding, the overall economic outlook, as measured by PPI, seems to be encouraging.
The performance of economy indicated by PPI is consistent with the latest Business Confidence Survey 2021 by Overseas Investors Chamber of Commerce and Industry (OICCI), which also illustrated the strengthening of business confidence and augmented growth prospects on the back of uptick in the business activities.
With the ease in lockdown restrictions and a mass vaccination drive, overall state of the economy seems encouraging and on a right track. However, there is still a need to curb the inflationary pressure, as this will not only improve the purchasing power/real incomes but also reduce the input cost of LSM. Addressing the supply side shocks of basic food items is pertinent to lower food inflation, which is the main cause of rising overall inflation in the economy. These supply side shocks call for more liberal trade measures and elimination of state intervention in the market.
PRIME Institute publishes monthly PPI report with a lag of two months based on the availability of required data, the current report comprise data from July 2020 to June 2021.