Political, economic and psychological factors have collectively put pressure on the Pakistani consumer, reputed to be the most resilient and liberal spender in the region.

The obvious outcome is falling consumption.

The marked weakening of aggregate demand — a key economic stimulant that survived the testing times of political turbulence and violent militancy — is disquieting for businesses and economic observers.

The State Bank of Pakistan (SBP), which monitors consumer sentiments closely, was not perturbed. When reached for comment, sources in the central bank confirmed that consumer demand has indeed crashed. But they saw it as a sign of success of policies aimed at cooling down the overheated economy.

In a statement explaining the consumption story, SBP Chief Economist Dr Saeed Ahmed told Dawn: “Contractionary monetary policy is one of the factors and the impact of a cumulative 500-basis-point increase in the policy rate over the current fiscal has started to unfold.

Consumer demand has crashed, but central bankers see it as a sign of successful policies aimed at cooling down the overheated economy

“Other major factors behind slower overall growth are lacklustre performance of agriculture and a reduction in development spending. Also, the fall in the sales of durables like automobiles is partly explained by the ban on non-filers.

“In addition, the exchange rate adjustment may have forced expenditure switching from imported to domestic goods. However, since the domestic production would take time to respond, domestic demand has been depressed.

“In sum, stabilisation measures, especially the exchange rate depreciation and higher inflation, have reduced the purchasing power in the economy during the adjustment phase.”

The SBP in collaboration with the Institute of Business Administration (IBA) has been conducting the Consumer Confidence Survey every second month since 2012.

In the last survey released in March, an increase of 2.5 per cent in the Consumer Confidence Index (CCI) was reported despite a higher inflation expectation. The May edition of the survey will likely be released today after the monetary policy announcement.

The graph depicting the consumer perception of the future and current economic conditions over the past seven years highlights the optimistic nature of the Pakistani consumer.

That the CCI has remained higher than the Current Economic Condition (CEC) Index and the Expected Economic Condition (EEC) Index since May 2018 can be attributed to unflinching political support for the PTI despite growing economic stress.

A representative of the business community who spoke on condition of anonymity expressed anxiety. “The businesses found the growing consumer reluctance worrying because it has proven to be the only consistent driver that has kept Pakistan’s economy moving. In a diplomatically alienated Pakistan, I see no future for the market or marketers if domestic demand tanked.

“Taking a cue from the strong retail-sector growth multiple, big business houses entered the field with high expectations. What one gathers from the stories circulating in the elite circles, many investors have already burnt their fingers and others are waiting for miracles to escape the obvious destiny. There will be blood if the situation deteriorates,” he warned, saying that businesses are working on exit strategies.

“The growing share of the retail sector in GDP and a high pace of its growth over the past three decades are treated as a testament to robust consumer demand. Who knew the real meaning of Imran Khan’s Naya Pakistan when people were falling over each other last year to support his causes!” another business leader said bitterly.

According to the last Pakistan Economic Survey, the wholesale and retail sector posted an annual 7.5pc growth in 2017-18. It constitutes 31pc of the services sector.

“Lower footfall in markets in a month when consumer spending peaks is more significant than the shrinking auto, consumer durables or fast-moving consumer goods (FMCG) market. It depicts consumer sentiments succinctly and points to the direction we are heading towards,” a market-watcher said while referring to Ramazan.

“I don’t think it is a matter of choice for consumers. The shopping aspiration must still be there, but the affordability is compromised with fewer avenues to supplement income, eroding rupee value and price hike,” he added.

The propensity to consume in Pakistan is said to be the highest amongst its peers. At around 10pc of GDP, Pakistan’s savings rate is the lowest in the region and less than half of India’s. According to the World Bank, the average value of consumption as a percentage of GDP over 50 years (1967-2017) is 78.4pc.

“In 2019-20, we can expect to see some price reductions across consumer durable products to beat the competition and pull rates down to the affordability level,” remarked a trader operating in Karachi’s Electronic Market.

There is little hope that the rural consumer base will come to the rescue of the economy. The withdrawal of subsidies can’t be expected to drive up growth or positively impact the rural household income.

Published in Dawn, The Business and Finance Weekly, May 20th, 2019