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Business

December 29, 2016

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Macroeconomic stability in 2016 kept growth even and exporters unhappy

Macroeconomic stability in 2016 kept growth even and exporters unhappy

LAHORE: As the government continued to focus on macroeconomic stability in 2016 as well, local economists remained critical, and exporters scorned the policy for lack of concessions and subsidies.

The economy has not come out of the woods yet, but growth has gradually picked up in the last three and a half years; a fact that has also been applauded by creditable global institutions.

The agriculture sector failures slashed the GDP growth by one percent, while institutions remained weak in 2016 which also slowed down the growth potential. Disputes regarding economic growth lingered this year as well, as inflation remained below five percent throughout 2016.

The interest rates remained at the lowest level; rupee was more or less stable, though it is currently under pressure that shielded the poor from exorbitant increase in prices. The foreign exchange reserves remained at a comfortable level. Imports continued to increase throughout the year and exports remained under constant pressure.

Nevertheless, the economic planning of the present regime is paying off with cement posting 25 percent increase in consumption, auto sector growing by 30-35 percent and the textile sector reviving after getting re-gasified liquid natural gas (RLNG).

Injecting RLNG in the system spared 350MW of electricity that the exporting industries consumed in Lahore only. Overall over 1,000MW electricity is now available for domestic consumption. The use of RLNG is likely to double next year for power generation and industries.

The upward trend in exports witnessed in November this year is expected to continue next year. Textile exports have declined sharply but most of the hit has been taken by low value-added sector, while the apparel exports after remaining stagnant for eight months have started growing.

The yarn and fabric manufacturers now have to make products needed by local value-added sector instead of targeting export markets where the competition is stiff. The operational viability of China-Pakistan Economic Corridor (CPEC) route was demonstrated two months back which was a good omen for our economy.

Very few Greenfield projects were launched in 2016 but the well established companies did well as is evident from the profits posted by the listed companies. They owe their success to better execution of plans that optimised their existing businesses. 

As far as the private sector is concerned, the firms in Pakistan continued to digitalise their back offices, however most continued to neglect the consumer facing function. This deprived the firms of most of the benefits of digitalisation as sales are as important as efficiency of production.

Marketing through social media gained momentum in 2016. The fashion industry and larger textile brands increased their market share by tapping high end consumers through social media networks.

Since the industries and services are upgrading technology, and low skilled jobs are being replaced by high skilled jobs, growth in our exports was less than our neighbouring countries like India and Bangladesh, who export value-added products.

No efforts were made this year in strengthening the institutions. Inappropriate regulatory framework continued to aid in tax evasion, low wages; bank arrears and rent culture, all of which indicate weakening of institutions.

The state failed to make any meaningful progress on privatisation this year. Before 2013 election, almost every major party claimed privatisation of loss making institutions was in the country’s interest, but now, forty two months later, all opposition parties are opposing the privatisation of PIA, Pakistan Steel Mill, and power distribution companies.

Incidentally, these are the companies that are bleeding the national resources profusely. Political pressures are so high that the government has in fact backed out of PIA privatisation and is ready to sell PSM to the Sindh government, which is merely a transfer of losses.

Corruption remained as rampant as ever and transparently run companies that did not pay bribes faced numerous delays and cost overruns. Their competition is which large non taxpaying sector, uncertain government policies, underperforming regulators, stagnant reforms process, increased labour costs, and SROs. Tax loopholes pointed time and again by Institute of Chartered Accountants of Pakistan were not plugged this year as well. This is facilitating the tax evaders that take benefits of these loopholes by amassing wealth without violating the law. The law still provides protection to any amount of remittance received from abroad. The tax evaders pay two to three percent to money changers to bring in black money officially through remittances. The benami property law rusted in the National Assembly throughout the year, while a similar law was passed by the Indian parliament. The year is ending without any progress on intellectual property law, reduction in power theft, and smuggling and under invoicing, all of which continue unabated.

 

 

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