Pakistan’s economy - some positives

Courtesy:- Kamal Monnoo

Pakistan is routinely accused of either standing at the brink of an abyss, or being right in it, or fast becoming a failed state etc. There are critics who consistently moan about Pakistan losing its competitiveness, the continuously dwindling domestic and foreign investment in the country, growing unemployment and rising poverty, widening gap between the haves and the have-nots, gross mismanagement in the public sector enterprises, rising national debt, naked fiscal imprudence of the government, a rising current account deficit leading to an alarming and worsening of the balance of payment situation that if not timely corrected can see us default on our debt obligations and, last but not least, about a painfully extended cycle of low economic activity and high inflation is testing the patience and resilience of the Pakistani people like never before. Corruption is rampant, internal law and order is seriously compromised and sadly a perception of Pakistan is fast emerging in the international financial and corporate communities of a country difficult to engage and, perhaps, best avoided unless necessary!

While there is no denying the fact that Pakistan’s economic health, its global ratings and image per se are all taking a serious dent and, of course the recent (released in February 2012) IMF report on the state of the Pak economy notwithstanding, the reality also is that it has a very resilient and robust side that continues to surprise. A picture that depicts the glass to be at least half full, points to the sectors that are consistently growing and adding value and, more importantly, exposes the huge underlying economic potential which despite poor governance keeps taking the national economic activity to the next level. Amidst great adversities and serious financial challenges, there does exist a silver lining on how the economy has performed over the last 12 months and some of the positives going forward.

On the back of a slowly but surely evolving middle class, there exists a visible consumption boom in the economy where companies are going through a period when domestic sales have never been higher. An exceptionally high percentage of young employable youth is unearthing new dynamics, as these fresh minds strive to create their own opportunities, thereby unleashing a wave of innovative entrepreneurial benefits. For example, the quality and speed at which the Pak urban consumer and service sectors (fashion wear, eateries, home decor, healthcare centres, private education, beauty salons, leisure and entertainment etc) are growing has but a few parallels in the world.

The inflow of foreign exchange remittances by Non-Resident Pakistanis (NRP) has never been stronger and provided its current rate of growth does not stall, the government envisages that the final figure is well on course to touch the $18 billion per annum level. Add to this, the fact that our exports registered $25 billion in 2011 and the possibility that if we can somehow supplement these inflows from NRP remittances and national exports, by re-attracting the presently dried up Direct Foreign Investment, there actually exists a strong case for successfully balancing our current account status - Pakistan as we know (even with the oil prices are high) is an economy that traditionally imports between $35 and $38 billion per annum.

The reserves in the meanwhile have held their ground at around the $17 billion mark and when doing a regional comparative analysis on parity with the US dollar one finds that the Pak rupee has also fared better than most of its neighbours. In fact, against the European currencies, like the Euro and the Sterling, the Pak rupee has gained in value when comparing its parity during the pre- and post-European crisis periods.

Further, according to the latest data released by the FBR, the revenue collection this year is on target and is likely to cross the Rs2,000 billion mark for the first time in history. If this drive by the centre for revenue generation can serve as an inspiration for the provinces to play their due role (post-Eighteenth Amendment) in resource generation, our tax to GDP ratio can start looking quite respectable - India collects nearly 40 percent of its tax revenue through states and the growth rate in revenue generation at the state level is significantly higher than that for the centre. The corporate sector may be underperforming, but, in spite of the odds loaded against it, has posted some impressive results.

Large Scale Manufacturing (LSM) has begun to turn the corner by registering a 1.50 percent growth from negative 0.80 percent in 2011, more than 1.50 million motorcycles were sold last year and Automobile Sector’s sales are about 30 percent above from the fiscal year 2004-05 (regarded by auto pundits to be their best year). Companies and banks in general have announced healthier profits with especially the consumer goods companies leading the pack by churning out some unprecedented results. This coupled with the new policy announcement on investment in the shares markets has given a boost to the stock markets with the KSE (Karachi Stock Exchange) Index climbing to near 14,000 points. If the returns can continue to be interesting, such an opportunity is bound to even lure back foreign investment into the Pakistani markets.

However, the above in no way should be regarded as a narrative in favour of the government, since as explained towards the beginning, these successes are despite the absence of ‘good governance’ and not because of it. Pakistan’s economy has survived the test of time, but sadly has not been able to live up to its true potential. Unless the decline is arrested now, with each passing day the situation will become increasingly difficult to retrieve. The economic management needs to be modified and regulated in a way that it is transparent, discourages corruption, does not stifle growth and innovation, does not severely raise the cost and access to credit for budding entrepreneurs, does not constrain the process of financial inclusion, and ensures equitable distribution of resources. And in doing so, care should be taken that in the process the very spirit of free enterprise does not get stifled.