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Economic insecurity decreases consumer spending in Pakistan

Economic insecurity decreases consumer spending in Pakistan

Pakistan is currently facing several challenges and one of the major is economic unrest that is significantly impacting the lives of its citizens. Pakistan’s experts record that the economic unrest has had a profound impact on consumer spending.

As we know Consumer confidence is an important factor affecting the demand for consumer goods. Regardless of their present financial condition, consumers are more probable to purchase greater amounts of consumer goods when they feel confident about both the overall condition of the economy and their personal financial future. High levels of consumer confidence can mainly affect consumers’ inclination to make main purchases and to use credit to make purchases. Overall, demand for consumer goods grows when the economy producing the goods is growing. Experts record that an economy showing good overall growth and continuing prospects for steady growth is usually accompanied by a corresponding growth in the demand for goods and services. According to the World Bank (WB), food prices in Pakistan have been growing for 11 consecutive months, eroding the purchasing power of households by as much as 38 percent. WB also mentioned that the consumer price inflation for food items in Pakistan was recorded at 47.2 percent during March 2023 on a yearly basis – the highest in South Asia after Sri Lanka with 47.6 percent. However, the statistics suggest that the Consumer price index (CPI) is falling in Sri Lanka for the last various months while it is on the rise in Pakistan. Statistics identified that in Sri Lanka CPI was registered at 49 percent during February and came down to 47.6 percent, however, in Pakistan, it grew from 45.1 percent to 47.2 percent. WB also identified that in Pakistan, the World Food Program (WFP) Market Monitor Report reports yearly CPI food inflation of 43 percent in January 2023. The Pakistani approved a wheat procurement target of 1.80 million tons at a uniform procurement price of 3,900 rupees per 40 kg during February to stabilize the wheat market in the face of rises in regional demand, limited carry-forward stocks, and high local wheat prices. Sources recorded that the amount spent during Eid in 2023 was recorded at Rs 432 billion, the lowest in a decade, and an important decline from the Rs 1.1 trillion spent in 2018 and even less than the Rs 480 billion spent in 2021 because of Covid restrictions. As Inflation was identified as the primary cause, with the rising cost of imported goods like children’s clothing, which became disproportionately greater expensive as a consequence of our rupee’s depreciation, coming under particular criticism. It is said that consumer spending would have declined even if the economy were not in freefall.

The Rise in consumer spending the previous year was because of retail therapy of Covid restrictions. Despite the fall in spending, charitable donations stayed high, with wealthy and upper-middle-class Pakistanis going above and beyond to assist those in need. However, charity alone is not enough to sustain Pakistan, and people who work hard should be able to advantage of their labor. On the other hand, Pakistan’s political history is marked by decisions that were made without consideration for their economic consequences, and no doubt political insecurity has only exacerbated the problem. Every year, new budget and economic policies are introduced, which undermines the confidence of investors and development partners. Statistics showed that Pakistan’s tax-to-GDP ratio is currently at 8.6 percent, far below the average of around 16 percent in emerging market countries. It is also important to note that several firms have proclaimed temporary shutdowns or a rollback of operations because of economic unrest, and effective and sustainable strategies are required to address the root causes of the crisis. A broad developmental plan needs to be prepared and implemented sustainably to attain long-term economic growth without political interference as a result consumer confidence would be increased.

The Business community has urged all political parties in the country to come together and create a roadmap for political as well as economic stability. It is imperative that they work together to stabilize the economy and create a better future for the people in the country. The Government of Pakistan officials mentioned in a report that the rising input costs on the back of high utility prices and the lagged impact of exchange rate depreciation are likely to maintain upward pressure on inflation in the following month of the outgoing fiscal year. There is significant uncertainty around the outlook for international commodity prices as well which had been exacerbated by the Russia-Ukraine conflict. The impact will be more visible in non-food prices, while food prices are likely to remain stable due to effective monitoring of prices and smooth supply of essential items by the federal and provincial governments.

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