Page 50 - CMA Journal (May-June 2025)

Focus Section

Still, there are limitations. High interest rates (22% policy
rate) make financing unaffordable—especially for SMEs.
Banks are increasingly risk-averse, resulting in a 14%
year-on-year decline in private-sector credit growth in
2023 (SBP, 2024). Many businesses cannot scale their
solutions without access to working capital, even when
demand exists.

The main concern is that these adaptive strategies are
short-term survival tactics, not sustainable long-term
plans. Delaying investments, lowering product quality,
and freezing hiring may help businesses endure the
current climate, but they also hinder innovation and
alone—without targeted subsidies, stable regulations, or
productivity. Business sustainability requires
access to affordable capital. If these policy gaps persist,
stability—and Pakistan’s volatile inflation is stripping
there is a risk that a short-term inflation shock could
firms of that foundation.
evolve into prolonged economic stagnation.
Even the most creative strategies may fall short if
inflation remains unchecked. Without coordinated policy Conclusion
support, broad digital transformation, and meaningful Inflation significantly undermines business sustainability
financing reform, Pakistan risks a shrinking formal sector in Pakistan, pushing costs out of control and squeezing
and an expanding informal economy—making profit margins across key sectors. As consumer demand
sustainable growth increasingly difficult. declines and operational expenses rise, businesses are
forced to adopt short-term strategies like shrinkflation,
Policy Gaps and Missed Opportunities
product downsizing, and efficiency cuts to survive.
Businesses turn to governments for direction, relief, and Although these responses demonstrate adaptability,
consistency during economic strain. In Pakistan, they are no substitute for comprehensive and long-term
however, policy uncertainty has contributed to the structural support. A sustainable future depends on
problem rather than providing a solution. The lack of a stable economic policies, accessible financing, and a
clear and supportive policy framework has made survival business environment that fosters innovation, resilience,
even more challenging for many businesses navigating and inclusive growth. Without this foundation, survival
high inflation and declining profit margins. will remain uncertain and growth unattainable.
In 2023, the State Bank of Pakistan increased its policy References
rate to 22% in an effort to control inflation, which • All Pakistan Textile Mills Association (2023) Impact of Inflation on the
significantly raised borrowing costs. While this move Textile Sector.
helped stabilize inflation expectations to some extent, it • Business Recorder (2023) Inflation and FMCG sales: How consumer
also placed considerable pressure on small and habits are shifting.
medium-sized businesses that rely on working capital • NEPRA, National Electric Power Regulatory Authority (2024)
Industrial Electricity Tariff Report.
loans. According to the SBP, private sector credit growth
• PBS, Pakistan Bureau of Statistics (2024) Monthly Price Indices - May
contracted by 14% in 2023 as banks tightened lending
2024.
standards and firms avoided expensive debt.
• PBS, Pakistan Bureau of Statistics (2025) Consumer Price Index
At the same time, fiscal policy failed to provide consistent Summary – May 2025.
relief. The government frequently changed sales tax • Pakistan Business Council (2023) SME Inflation Impact Survey Report.
rates, import duties, and energy subsidies, making it • PSE, Pakistan Stock Exchange (2024) Annual Financial Performance
difficult for businesses to plan effectively. Importantly, Summary – KSE-100 Companies.
there is no single national strategy that connects inflation • SMEDA, Small and Medium Enterprises Development Authority
(2023) Survey on SME Survival and Inflation Impact.
management with business continuity. Policies in areas
• SBP, State Bank of Pakistan (2024) Monetary Policy Statement –
such as monetary, fiscal, and trade are developed in
January 2024.
isolation, often resulting in contradictions. For instance,
while the government advocates a "Make in Pakistan” About the Author: The author is an Associate Member of ICMA and
holds an MS in Project Management. He is currently the Co-founder
agenda, high import duties on essential machinery and
and Partner at FAUD (Faizan Umair Danial & Co.), a firm of
components discourage the growth of local Chartered Management Accountants. With over 7 years of
manufacturing. experience in tax advisory, ERP (Dynamics 365) implementation,
and strategic consulting, he has led digital finance transformations
This lack of policy coordination leaves businesses for top-tier clients, including Pakistan’s largest retail chain and
vulnerable. Many believe they are fighting inflation several multinational firms.

48 ICMA’s Chartered Management Accountant, May-June 2025