Signs of economic recovery amid low indigenous resources

LAHORE: The under currents in economy depict positive trends forcing the investors, economists, and analysts to dig into economic data and look for ‘green shoots’, a globally acknowledged phrase to describe signs of economic recovery.

The macroeconomic data provides mixed signals. The economic base in the country is strengthening with the launch of various mega development projects. But the exports have been on decline for more than 18 straight months.

The consumption component of our GDP is relatively large, while the income of a majority of the households is small. They are forced to spend a bulk of their income on food, education, and healthcare. As a result, the overall national savings remain lowest in the region, which has limited our ability to finance investments from our indigenous resources.

On the other hand, foreign direct investment has been poor as well and did not cross even $2 billion in the last two years.

Despite these snags, the overall investment climate has been better compared to the past eight years, rupee is stable; inflation is low and interest rates are lucrative; and the domestic investors have accumulated large reserves in the past seven years.

The economy is now much more stable and has maintained a growth rate of over four percent in the past three years. Though this growth is modest, it has not oscillated up and down during this period.

Moreover, there has been an increase in demand for consumer credit in the urban centres. The auto and cement sector have also been gaining.

Auto financing gained momentum, increasing the demand for cars, and during the last fiscal, the country produced the highest number of cars in ten years. Motorcycle production remained stable, but the demand from rural areas declined due to low commodity rates in 2014-15 and then failure of some major crops in 2015-16. The gloom in agriculture sector also impacted the sales of tractors, though experts hope agriculture production to rebound this year.

Cement production has reached new heights on the strength of numerous infrastructure projects launched by this government. The housing sector has also shown growth that has increased consumption of steel, electrical cables, and other items used in the construction sector.

The MCB PMI (Purchasing Managers Index) has remained positive for the last 15 months and has improved appreciably in the last six months.

Some industries like auto, cement and plastics are operating at very high capacities. Textiles however remained under pressure throughout the last fiscal. Basic textiles suffered badly and are operating at 66 percent of the installed capacity.

After dilly dallying of eight to nine months the government has clearly indicated that no more concessions would be given to the textile sector other than those announced in the textile policy. This would at least remove the uncertainty and enable the sector to take decision on investment or disinvestment in the sector.  We can say that green shoots are visible in some segments, while some areas are still struggling. Many, even in the textile sector, realise that they cannot postpone their investments further if they have to remain in the global markets.

The demand for services is increasing domestically. Many retail outlets are expanding at a high rate. Textile retail outlets have in fact provided some relief to the basic textiles as they lost orders abroad. A new trend to introduce brands locally and then expand it in global markets has started in the past three years. Many leading millers have established their footprints in European, Middle Eastern and US markets. Software exports are on the rise. Experts expect that growth would accelerate appreciably in coming years.

Public sector services however have not revived to the desired level. Railways’ is still unable to transport goods around the country even at 25 percent of its potential. PIA is still struggling. Pakistan Shipping Corporation is in shambles. There is no sign of revival in Pakistan Steel Mill. And amid all this, the power sector inefficiencies are crippling the economy.