A Tale of Two Economies: How Pakistan’s Inflation Control and Economic Stability Outpaced Turkey Amid Global Challenges

The financial institutions and rating agencies of the world have praised the Pakistan’s inflation control and economic stability. Pakistan and Turkey have also been grappling with major economic problems related to inflation and interest rates in the last two years. This Note compares the paths forward for inflation, monetary policy, and overall economic performance between these two economies over 2022-2024.

Inflation Trends

Turkey

In 2022, Turkey experienced a sharp rise in inflation, reaching 85.52% in October, the highest in decades. This surge was attributed to a combination of factors, including currency depreciation and unconventional monetary policies. By early 2024, inflation remained elevated, with rates around 64.8% in January. However, by October 2024, inflation had declined to 48.58%, indicating some stabilization.

Pakistan

Similarly, Pakistan faced escalating inflation during this period. In May 2023, the inflation rate reached 38%, surpassing Sri Lanka to become the highest in Asia. By October 2024, inflation had slowed to 6.9%, marking a 44-month low.

Monetary Policy and Interest Rates

Turkey

To combat soaring inflation, the Central Bank of Turkey implemented aggressive interest rate hikes, raising the benchmark one-week repo auction rate to 50% by October 2024. This tight monetary policy aimed to curb inflationary pressures and stabilize the currency.

Pakistan

In response to high inflation, the State Bank of Pakistan also raised interest rates, with the policy rate reaching 22% in June 2023. However, as inflation began to decline, the central bank reduced the policy rate by 450 basis points since June 2024, bringing it down to 17.5% by October 2024. Currently, it stands at 15% in November, 2.5% lower than October 2024.

Economic Performance

Turkey

The Turkish economy faced significant challenges, including a current account deficit and currency depreciation. Despite these issues, the economy grew by 3.7% in 2022. However, growth slowed to 2.5% annually in the second quarter of 2024.

Pakistan

Pakistan’s economy also struggled, with GDP growth plummeting to just 0.4% in 2023. However, by the fourth quarter of fiscal year 2024, GDP grew by 3.07%, primarily driven by agricultural (6.76%) and services (3.69%) sectors.

Comparative Analysis of the Economic Conditions of Pakistan and Turkey

Both countries faced high inflation rates, prompting central banks to implement tight monetary policies. Turkey’s inflation peaked at 85.52% in October 2022, while Pakistan’s reached 38% in May 2023. By October 2024, both countries had made progress in reducing inflation, with Turkey at 48.58% and Pakistan at 6.9%.

In terms of interest rates, Turkey’s central bank raised the policy rate to 50% by October 2024, while Pakistan’s central bank has reduced the policy rate to 17.5% by the same period, which is now further reduced to 15% as of November 4, 2024.

Economic growth in both countries was affected by these challenges. Turkey’s growth slowed to 2.5% in the second quarter of 2024, while Pakistan’s GDP grew by 3.07% in the fourth quarter of fiscal year 2024. Though Pakistan’s inflation control and economic stability remained a lot better than Turkey’s for the said period.

Significant Achievements of Pakistan Compared to Turkey

While both nations faced economic hurdles, Pakistan achieved the following notable milestones during this period.

Foreign Exchange Reserves – Pakistan’s foreign exchange reserves increased from $3.1 billion in January 2023 to $11 billion by October 2024.
Agricultural Growth – The agriculture sector in Pakistan grew by 6.76% in FY2024, contributing significantly to GDP growth.
Inflation Control – Pakistan managed to reduce inflation to 6.9% by October 2024, a 44-month low, indicating effective monetary policies.
Stock Market Performance – The Pakistan Stock Exchange (PSX) saw a 101% rally from September 2023 to Nov 13, 2024, with PSX index at 93,355 points, reflecting improved and extraordinary investor confidence.

All these factors made Pakistan’s inflation control and economic stability a lot better than Turkey’s.

Role of Pakistani Leadership in Economic Achievements

The concerted efforts of Pakistan’s leadership were instrumental in these accomplishments and made the economic revival happen for Pakistan.
Finance Minister: Muhammad Aurangzeb, appointed in 2023, implemented fiscal policies aimed to stabilize the economy, including negotiating a $7 billion IMF bailout to support economic reforms.
Governor of the State Bank of Pakistan (SBP): Jameel Ahmad, who has been serving since August 2022, led monetary policies that effectively controlled inflation and stabilized the currency.
Prime Minister: Shehbaz Sharif’s administration focused on structural reforms, enhancing investor confidence, and securing international financial support to bolster the economy.

Conclusion about How Pakistan’s Inflation Control and Economic Stability Outpaced Turkey

Both Turkey and Pakistan have faced significant economic challenges over the past two years, particularly concerning inflation and interest rates. Both countries implemented tight monetary policies to combat high inflation, leading to some stabilization by late 2024. However, economic growth remained subdued, highlighting the need for continued policy measures to ensure sustainable economic recovery. Pakistan’s leadership played a crucial role in achieving these milestones through effective fiscal and monetary policies and ensuring Pakistan’s inflation control and economic stability within a shorter time.

Both countries, being longstanding brotherly nations with deep-rooted Islamic, strategic, and economic ties, have built a foundation for mutual growth. Their close relationship, encompassing trade and strategic cooperation, presents valuable opportunities to accelerate economic progress for both countries in an increasingly interconnected global economy.

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