# **Detailed SUMMARY of the Article "Unstable Outlook," Dawn, January 28th, 2025**: The article addresses the State Bank of Pakistan's (SBP) recent decision to cut the policy rate by another 100 basis points, bringing it to 12%. This marks a cumulative reduction of 1,000bps since June, highlighting efforts to maintain fragile economic stability. The SBP is now faced with the critical decision of whether to pause or continue its monetary easing cycle. While the monetary policy statement indicates the need for a cautious stance to ensure price stability and sustainable growth, it acknowledges several risks to inflation, including volatile global commodity prices, adjustments in energy tariffs, and tax measures to meet Federal Board of Revenue (FBR) targets. Despite these concerns, the current account surplus, increasing remittances, slight export growth, and declining inflation projections (5.5%-7.5% from an earlier estimate of 11.5%-13.5%) suggest room for further easing, as real interest rates remain significantly higher than the historical average. However, the editorial cautions against repeating past mistakes of prioritizing short-term growth over long-term stability. Historical balance-of-payments crises in 2018 and 2022, triggered by hasty growth pursuits without structural reforms, underscore the risks of such a strategy. In an unstable global environment marked by trade tensions and protectionist policies, the wealthy may escape the repercussions, but the middle class will bear the brunt of economic mismanagement. The article advocates prioritizing structural reforms and long-term stability to avoid further economic crises. --- # **Easy/Short SUMMARY**: The State Bank of Pakistan has cut its interest rate to 12%, continuing a series of reductions aimed at supporting the economy. While inflation risks and global uncertainties suggest caution, improving exports, remittances, and a current account surplus provide room for easing. However, rushing to stimulate growth without fixing deeper issues could lead to another economic crisis, as seen in 2018 and 2022. The article urges focusing on stability and reforms instead of short-term gains, which would protect the middle class from further financial struggles. --- # **SOLUTIONS of The Problem**: ## **Structural Economic Reforms** Introduce and implement structural reforms to improve tax collection, reduce dependence on imports, and boost domestic production to stabilize the economy in the long term. ## **Monetary Policy Balancing** Adopt a balanced monetary policy approach that maintains a positive real interest rate, ensuring inflation remains within the target range of 5%-7%. ## **Export Diversification** Promote export diversification by supporting industries beyond textiles, such as technology and agriculture, to strengthen the trade balance. ## **Debt Management** Establish a robust strategy for managing external debt to avoid overburdening the economy with repayments during periods of instability. ## **Energy Tariff Adjustments** Gradually implement energy tariff adjustments to avoid sudden shocks to inflation and ensure predictability for businesses and households. ## **Inflation Control Measures** Monitor and address key factors driving inflation, including global commodity prices, through prudent fiscal and monetary policies. ## **Private Sector Incentives** Provide targeted incentives to the private sector to encourage investment in productive sectors rather than consumption-driven growth. ## **Middle-Class Protection Policies** Introduce measures to shield the middle class, such as tax reliefs and subsidies on essential goods, to mitigate the impact of economic fluctuations. ## **Global Trade Cooperation** Strengthen international trade relations and diversify markets to reduce reliance on a few partners, mitigating risks from protectionist policies. ## **Public Awareness Campaigns** Educate the public about the importance of economic stability and reforms, encouraging collective efforts to support sustainable growth. --- # **IMPORTANT Facts and Figures Given in the Article**: - The State Bank of Pakistan has cut the policy rate by 100bps to 12%, marking a total reduction of 1,000bps since June. - Inflation projections have been revised downward to 5.5%-7.5% from an earlier 11.5%-13.5%. - The current account surplus is estimated at 0.5% of GDP, with increased remittances and export growth. - Real interest rates stand at 790bps, well above the historic average of 200-300bps. - Pakistan faced balance-of-payments crises in 2018 and 2022 due to unsustainable growth strategies. --- # **MCQs from the Article**: ### 1. **What is the current policy rate of the State Bank of Pakistan as per the article?** A. 10% B. 11% **C. 12%** D. 13% ### 2. **What is the target range for inflation set by the State Bank of Pakistan?** A. 4%-6% B. 6%-8% **C. 5%-7%** D. 8%-10% ### 3. **What is the estimated current account surplus as a percentage of GDP?** A. 0.3% B. 1.0% **C. 0.5%** D. 2.0% ### 4. **Which years did Pakistan face balance-of-payments crises as mentioned in the article?** **A. 2018 and 2022** B. 2017 and 2021 C. 2019 and 2023 D. 2016 and 2020 ### 5. **What is the revised inflation projection for the fiscal year?** A. 4%-5% **B. 5.5%-7.5%** C. 6%-8% D. 7%-9% --- # **VOCABULARY**: 1. **Fragile** (نازک): Easily broken or damaged. 2. **Easing** (نرمی): Making less strict or severe. 3. **Volatile** (غیر مستحکم): Likely to change rapidly and unpredictably. 4. **Surplus** (اضافی): An amount of something left over when requirements are met. 5. **Stabilize** (مستحکم کرنا): To make steady or firm. 6. **Magnitude** (وسعت): The great size or extent of something. 7. **Administered** (نافذ شدہ): Managed or executed. 8. **Projections** (اندازے): Predictions or estimates of future events. 9. **Tempting** (پرکشش): Appealing or attractive. 10. **Blunders** (غلطیاں): Stupid or careless mistakes. 11. **Unsustainable** (غیر مستحکم): Not able to be maintained. 12. **Stabilisation** (استحکام): The process of making stable. 13. **Protectionist** (تحفظ پسند): Supporting policies that protect domestic industries. 14. **Repercussions** (نتائج): Unintended and unwelcome outcomes. 15. **Impatience** (بے صبری): The tendency to be quickly irritated or provoked. 16. **Structural Reforms** (ڈھانچہ جاتی اصلاحات): Fundamental changes to the system. 17. **Consumption** (استعمال): The use of goods and services. 18. **Perilous** (خطرناک): Full of danger or risk. 19. **Mediation** (ثالثی): Intervention to resolve a conflict. 20. **Prioritize** (ترجیح دینا): To arrange in order of importance. --- 📢 *Attention Please!* We appreciate your commitment to acquiring knowledge through our summaries. 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Click the link below to join now: 🔗 [Dawn Article Summaries](https://cssmcqs.com/dawn-editorials-articles-summary-for-students-pdf-download/) *WhatsApp Channel Link* https://whatsapp.com/channel/0029Va7tT3o35fLnJeFbpS2y dawn.com Unstable outlook Editorial 3–4 minutes HAVING slashed its key policy rate by yet another 100bps to 12pc, the bigger question for the State Bank now is whether or not it should pause the ongoing monetary easing cycle, which has seen the rate being cut by 1,000bps since June to preserve the recently achieved fragile stability. Though the bank had long stopped providing forward guidance on interest rates, the latest monetary policy statement and its governor’s post-policy briefing offer some insights into the SBP’s thought process. On the one hand, it believes that a “cautious monetary policy stance is needed to ensure price stability ... for sustainable economic growth”. This demands that the real policy rate “remain adequately positive on a forward-looking basis to stabilise inflation in the target range of 5-7pc”. Moreover, the risks to inflation — volatile global commodity prices, protectionist policies in major economies, timing and magnitude of administered energy tariff adjustments, volatile perishable food prices, and any additional tax measures to meet the FBR target — call for a pause on monetary easing, or at least moderation in the pace of rate cuts. On the other hand, the current account is expected to run a surplus of 0.5pc of GDP, with international reserves rising on increased remittances and a slight growth in exports in spite of heavy debt payments, while the bank has revised down its projections for the average annual inflation to 5.5pc-7.5pc, or close to its targeted range, from its original estimate of 11.5pc-13.5pc for this fiscal year. This means that the SBP still has enough room to continue the monetary easing cycle as real interest rates stand at 790bps, much higher than the historic average of 200-300bps. Indeed, the economy appears to have turned a corner in the last several months. The improving indicators can be tempting enough to act boldly in order to accelerate economic growth. But must the bank go for this path and repeat past blunders? In spite of the recent recovery, the economy remains on edge. The 45.5pc reduction in interest rates in seven months should be enough, at least for now, to send a positive signal to the private sector. It is time to prioritise long-term stability over unsustainable faster growth driven by imported consumption. We have seen the economy experiencing severe balance-of-payments crises as recently as in 2018 and 2022 due to the elites’ impatience with stabilisation policies. Chasing growth without executing structural reforms in an uncertain global environment — in which the possibility of a global trade war in the wake of President Donald Trump’s threats to impose tariffs on America’s trade partners and rivals alike — can be suicidal. The wealthy elites will escape the impact. But it will crush middle-class households who have borne the brunt of the economic instability. Published in Dawn, January 28th, 2025