Macro condition and stagflation.

Pakistan's economy passed through a rough patch in the outgoing fiscal year where gross domestic product (GDP) turned negative along with double-digit inflation.

Many media commentators and analysts are of the view that there are signs of recovery in the economy. On the political front, there is a lot of political turbulence going on now under the umbrella of Pakistan Democratic Movement (PDM).

On the economic front, the government is under pressure to deal with the high unemployment and inflation rates. Under the volatile political situation, the government is trying to resume the International Monetary Fund (IMF) loan programme where the IMF may ask for raising electricity and gas tariffs along with certain institutional reforms.

The government has already fulfilled certain conditions to resume the Extended Fund Facility (EFF) of the IMF. Owing to the slow pace of disbursement of funds in the first three months of FY21, the government has achieved 1.1 percent fiscal deficit and has met one of the quantification criteria.

On the monetary front, the State Bank of Pakistan (SBP) has brought down the policy rate to 7 percent in a span of six months. The impact of this adjustment has started to reflect in the real economy. The lower policy rate has eased liquidity conditions for leveraged businesses.

The index of large-scale manufacturing increased 4.8 percent in the first three months of FY21. Although many small businesses have closed down and a large chunk of people rendered jobless till now, yet large businesses have got decent loan deals from financial institutions.

In order to generate business under tough economic conditions, financial institutions are offering loans on easy terms to large businesses. In some cases, these businesses have started to bring back their employees who were on forced leave. The current recession has reduced gross external requirements of the country. The current account turned into surplus in the first three...