LAHORE: With uncertainty surrounding the macroeconomic indicators, businesses are not in a comfort zone, manufacturers are in limbo, importers are unsure about landed price in view of volatile rupee, while the service sector is also facing the impact of depressed sentiments.
The economy is apparently going down, but the prime minister keeps assuring businessmen that things will soon improve. Improvement will not come from verbal assurances; the government has not spelled out the steps it has taken for economic turnaround.
The nation recently swallowed the double dose of rupee depreciation and increase in interest rates. The declining rupee value is nullifying the impact of declining petroleum product rates.
Our competing economies with stable currencies will hugely benefit from reduction in global crude oil rates. In the manufacturing sector, the textile sector is in doldrums. Not only are basic textiles in trouble, but the value-added sector also has not benefited from massive devaluation of rupee.
Experts expected that global buyers would look towards other suppliers after Trump slapped high duties on Chinese textiles. They did, and placed orders with Bangladeshis, Vietnamese and Indian suppliers.
Pakistan was not on their radar. In fact, after enhancement of American duties on their products, the Chinese immediately took steps to relocate their industries elsewhere. Again preference was given to Cambodia, Vietnam and Bangladesh.
Our planners and textile players would have to find out the reasons for this pathetic performance. The cement sector has started losing domestic market due to slow construction activities, but its exports are increasing exponentially because the sector is globally competitive and its export growth is much higher than the devaluation of rupee.
That proves that if you are efficient you tend to increase your market share even if the rupee is depreciated. Cement exports increased each time the rupee was devalued. This did not happen with our five traditional export sectors, which indicates that either those are inefficient or have problems with quality.
The Chinese consul general has said that China would help Pakistan through investments and not cash. Investments have not yet been made.
Even if the Chinese started relocating some of their plants to Pakistan, the benefits would come after a year or two. Pakistan badly needs hard cash in foreign currency that would not come from the Chinese.
The help from Saudi Arabia has also been mute. The $1 billion it deposited in State Bank’s account was made too late, as by the time this help arrived Pakistan had already depleted its foreign exchange by over one billion dollars.
Now we are waiting for the next tranche of one or two billion dollars. Any further delay in this regard would put immense pressure on the rupee value. The oil imports on deferred payment have also not started.
We are in deep trouble as the IMF package has also been delayed. We will know after January 5, 2019 whether we get the package or not.
There is no room for complacency; we are moving very slowly. The government should ban all unnecessary imports forthwith to tackle the emerging scenario.
The government should suspend import of all vehicles and luxury goods till the foreign exchange situation improves. The imports could be allowed when we are in a comfortable situation.
Current uncertainty is having a negative impact on employment. We are in an economic emergency and instead of job creation we are experiencing job destruction.
If the manufacturers are uncomfortable, the traders are in panic as their sales have gone down. The large departmental chains, both local and multinationals, have already siphoned most of the consumers.
Low end consumers are not left with consumable cash to visit normal retail shops after massive devaluation. Inflation has doubled in one year that is hurting the pockets of every segment of the society, particularly the poor and lower middle class.
This situation would improve only after the macroeconomic indicators start improving. The costs of almost all items are expected to rise further after recent devaluation and increase in interest rates.
(This news/article originally appeared in The News on December 4th, 2018)