Business Recorder Editorials 3rd September 2026

Inflation soaring

EDITORIAL: The Pakistan Bureau of Statistics (PBS) calculated the Consumer Price Index (CPI) for August at 11.1 percent – 1.9 percent higher than the 9.2 percent estimated in July. It is relevant to note that the August rate is precisely the same as the June rate, while it is 0.6 percent lower than the May CPI and 0.2 percent higher than the April calculation. When compared to July-August last year, the rise in CPI in the first two months of the current fiscal year is stark: 3.56 percent in 2025 against 10.17 percent in 2026.

The major factor responsible for these high CPI rates is, without doubt, the ongoing Middle East crisis, which continues to choke the supply of petroleum and products (including diesel and aviation fuel), fertilizers, and helium to the international market; however, imports are being delivered to the Gulf countries by air, which is more expensive than shipping.

Data uploaded by the PBS indicates that the Wholesale Price Index (WPI) rose from negative 0.74 percent in July-August 2025 (negative, indicative of the overall prices traded in bulk at the wholesale level declining, or in economic terms, deflation in the wholesale market) while the CPI for July and August this year was positive. The four reasons for this discrepancy need to be looked at urgently by the country’s economic team leaders, and appropriate mitigating measures put in place:

(i) inclusion of the services sector; for example, doctors, hospital, education fees, which witness periodic raise are included in the CPI but not in the WPI; (ii) middlemen and in Pakistan the middlemen are operational in all sectors, including agriculture where aarthis with long-standing relations with farmers secure the seasonal crop and sell it at a price that allows for windfall profits; (iii) change in the wholesale price takes time to travel down the supply chain; however, in Pakistan the upgrade in regulated prices; for example, petroleum and products, is implemented immediately while any downward movement is resisted; and (iv) WPI focuses on industrial inputs like raw materials and fuel, which have been rising since 2019 due to the implementation of International Monetary Fund conditions, whereas CPI consists of consumer prices.

Pakistan has a large informal sector, estimated at almost 50 percent of the legal economy, where prices are charged based on the trader’s perception of the client’s ability to pay.

This accounts for a higher price charged by a street vendor if the client is in a fancy, expensive vehicle, while the price may be significantly lower if someone on a bicycle is the client. While successive administrations have been urging the Federal Board of Revenue (FBR) to bring the informal sector into the tax net, including small traders, this continues to be vigorously opposed by those operating within the informal sector.

In addition, many chartered accountants operating in the private sector have cautioned the FBR that the recently launched Tax Asaan mobile and web application—which was designed amidst much fanfare to help taxpayers file returns, register, and pay taxes—contains features that could be abused. A better option would be for the FBR to implement structural tax reforms and shift its heavy reliance away from indirect taxes.

While budget documents estimate indirect taxes at 50 percent, the actual figure is likely higher; this is because direct taxes include withholding taxes on sales, which are inherently indirect and account for an estimated 70 percent of all direct tax collections.

It is, therefore, critical for the government to look at components of its revenue (which must include the petroleum levy budgeted at a whopping 1.6 trillion rupees in the current year) to ease inflationary pressure on the vulnerable and lower- to middle-income earners, given that the percentage of people living below the poverty line in Pakistan, as determined by the World Bank, has reached a disturbingly high 42.4 percent.

Weaponising a lifeline

EDITORIAL: Prime Minister Shehbaz Sharif’s remarks at the Shanghai Cooperation Organisation summit in Bishkek that water must never be weaponised or used as an instrument of coercion merit attention and unequivocal agreement.

His warning comes as the management of shared water resources becomes an increasingly consequential dimension of regional security following India’s 2025 decision to place the Indus Waters Treaty (IWT) in abeyance.

The Permanent Court of Arbitration’s ruling a day earlier that the treaty remains in force reinforces the fundamental principle that such obligations cannot be discarded at political convenience.

The issue here, one must note, is the deeply troubling proposition that control over water can be used as a means of political pressure. As the prime minister put it, water is the lifeblood of the region.

Indeed, the principle is broader still: water, in fact, is the lifeblood of human existence. It sustains agriculture, ecosystems, industry and communities; and its availability determines whether societies prosper or struggle to survive.

Any attempt by a state to obstruct or manipulate the flow of an internationally shared water resource in violation of treaty obligations therefore carries consequences far more serious than an ordinary diplomatic dispute.

This is why Islamabad’s description of India’s action as an act of war is entirely justified. Since announcing its decision to hold the IWT in abeyance, New Delhi has created much uncertainty around river flows into Pakistan at critical stages of the agricultural cycle, while also approving hydropower projects over western rivers allocated to Pakistan under the treaty. For a water-stressed country whose economy depends heavily on the Indus River system, this is clearly an existential concern, with the potential damage extending well beyond farming. Pakistan’s agriculture supports millions of livelihoods and sustains a vast chain of economic activity, from fertiliser and seed markets to food processing, transport and rural commerce.

A significant disruption in water availability could therefore reverberate through the entire economy. Lower agricultural output would threaten farmers’ incomes, tighten food supplies and push up prices, while weaker production could hurt exports and the industries dependent on agricultural raw materials.

Water insecurity, then, could quickly become food, employment and economic insecurity.

One must note, though, that the implications here will not stay limited to Pakistan’s water and economic security. The delicate ecological balance of the entire Himalayan region will also be at risk.

The rivers originating in the Himalayas form an interconnected ecological system. Artificially altering river flows and accelerating interventions in fragile mountain environments can have consequences for ecosystems and communities across the region, and not just in Pakistan.

At a time when climate change is already intensifying glacier melt, floods, droughts and extreme weather, as tragically demonstrated by Nepal’s recent floods, further disruption of these systems could magnify risks for millions. There should, therefore, be no ambiguity about the key principles at stake here: international agreements governing shared waters are not optional arrangements to be invoked when convenient and discarded when circumstances change; and water cannot be treated as a geopolitical weapon simply because one country happens to control the upstream flows.

A deliberate attempt to deny populations access to an essential resource crosses a profoundly dangerous moral line, and where it violates international obligations and causes grave civilian harm raises serious questions under international law.

Pakistan must continue to defend its treaty rights through diplomatic and legal means, while urgently improving its own water storage, conservation and management. But the international community must also recognise the wider principle articulated by the prime minister: rivers cannot become weapons. In a warming and increasingly water-stressed world, treating them as such could endanger peace, human lives and the ecological future of entire regions.