Home / This Week / Cover Stories / Betterment of Pakistan’s economic situation

Betterment of Pakistan’s economic situation

Pakistan will have a growth rate of 1.5 percent in fiscal year 2020-21, as per IMF. government is trying to revive the economy and working on various initiatives for the industry in this respect. Stimulus packages due to COVID-19 and various incentives to the industries have been offered in the last few months and we now see their positive results as well. A couple of years back, the current account deficit was around USD 20 billion but it remained positive in the first five months of fiscal year 2020-21. Today, there is a record increase of 7 percent in large scale manufacturing (LSM); construction industry is at its full swing with record sales in cement and steel, sale of new cars has increased as compared to last year, stock exchange has increased by 72 percent, which is a sign of confidence of investors. New industries are being set up while existing industries are also being refurbished.

Out of 15 major industries, nine sectors have recorded a surge in the production. Because of better than expected output in the industrial and agriculture sectors, the Ministry of Finance now expects economic growth to be more than 2.5 percent against the target of 2.1 percent.

Presently, a lot of commodities are being imported which consume the foreign exchange of the country. Most of these commodities should not even be allowed to be imported. There should be some check on import of these commodities, for instance, Pakistan imports pulses, palm oil, chocolates, juices, tea, coffee, fruits, cell phone sets, computers, and many others. Is there any rationale to import such commodities? So much so, Pakistan assembles automobiles but that is only the assembly of automobiles and not the manufacturing. Three biggest car manufacturing brands came to Pakistan in the early eighties but as of today, they don’t have the manufacturing units but have the assembly plants only. Most of the international manufactures ask for volume so that their investments could be justified and could have better yield, which is quite reasonable and understandable as well. But why no car, laptop, cellphone manufacturing unit has been set up in Pakistan so far. This means that volume is not the only reason, the government should form a task force to investigate the bottlenecks and core issues and should also issue a long term balanced policy in this respect.

While we see positive signs in the economy, it doesn’t mean that everything is good and there are no issues with the economy. Performance of Pakistan’s State Owned Entities are miserably bad and there are no signs of improvement as yet. It seems that it is in the interest of some to keep these enterprises in bad shape. Over-staffing is one issue while technical non-performance is another. It is not so difficult to restructure these companies and can only be done, if there is an intent. Present government took 2.5 years just to appoint new directors on the board of the distribution companies, these should have been done in the first 90 days after coming into power. There are still many companies where there are no permanent CEOs and are working on an ad hoc basis. In this situation, it is difficult to review the economy on a permanent basis.

The biggest blunder made in the last 24 months was to keep the interest rates at 13 percent. It dropped to a single digit in the current fiscal year just because of corona. Keeping the interest rate at 13 percent was just to attract the foreign investors and their hot money. Hot money has all gone back. On a net, net basis, Pakistan has not gained much on keeping the interest rates high. Today the interest rate is 7 percent but the damage has been done. High interest rate has not only broken the back of the small-and-medium sized enterprises but also heavily consumed the cash flows of the government in paying off the high interest payments.

Import of textile machinery has dropped by 5 percent, while bank borrowings have increased by 16 percent in the current fiscal year mainly due to lucrative financing schemes currently being offered by the State Bank. Current account balance was positive for 5 months, which is now negative. It is mainly because of import of cotton and wheat. It is disappointing to see import of cotton and wheat in Pakistan. Pakistan was once a net exporter of cotton, sugar and wheat but today, it is importing these commodities. Cotton crop has dropped by 34 percent in the current fiscal year, which is unprecedented. Because of this drop, it is estimated that Pakistan would again be importing cotton in the next fiscal year.

Petrol prices are being increased every month; petrol prices have not been increased this month due to by-elections but will be increased in March. This increase will further increase the commodity prices whereas inflation will remain on the higher side. Pakistan’s inflation is not systematically linked with the interest rates and is more of a governance and mismanagement issue. The current level of inflation will have negative implications on the people.

Tax collection in the current fiscal year has dropped, if we don’t consider advance taxes received in the current fiscal year. Adding advance tax in the tax collection of a fiscal year is basically the shortfall of next fiscal year and the cycle goes on. But the bigger question is how long the existing tax filers will only be penalized and when will we see new tax filers. Existing tax filers are mostly salary people and they are exhausted now. It is important for the policy makers to take some measures in bringing in new tax payers and focus should be on securitizing their affairs. The matter has reached a point where existing taxpayers will be demotivated and will start finding ways and means to conceal their numbers, which will be a loss to the economy.

There is also a need to address the 18th Amendment and the federal government should transfer various enterprises to the provinces, which the federal government is still keeping with it. Health, education, some infrastructure projects especially roads/motorways should be transferred to the provincial governments. Distribution companies should also be transferred to the provinces and then it is up to the local governments to recover the electricity bills. Government should focus on state owned enterprises, should incentivize local manufacturing and should discourage import of luxury items.There is a need to have consistent policies regardless who is in the government.

Check Also

Etimad Online groceries now entering in other parts of Sindh

Etimad Online groceries now entering in other parts of Sindh

In Sindh, we see on regular basis that sub-standard products are being sold in high …

Leave a Reply