close
Thursday March 28, 2024

The real gap

By Mansoor Ahmad
August 08, 2020

LAHORE: Recently the economy has shown some positive signs but exuberance shown by some government functionaries is uncalled for; they should wait for more data as there are many a slip between the cup and the lip.

Tax revenues increased by over Rs50 billion in the first month of this fiscal. This is extraordinary, as this has never been achieved before in the month of July.

Then the exports in July registered an increase of 5.8 percent over the exports achieved during the same month last year. Cement uptake has increased by 37 percent in the domestic market again in July this year.

Economic activity is showing positivity, this data does show that. However, we have to wait for economic performance in the first two quarters of this fiscal before we pass a judgment.

As far as the economic managers of this regime are concerned, the prime minister’s adviser on commerce is on record to have shown the same exuberance more than four times during the past two years.

In fact, economists are confused whether Pakistan’s economic performance in the past two years should be termed a depression, recession or stagflation.

A recession in economic terms is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Some economists describe depression, as a decline in real GDP exceeding 10 percent or a recession lasting two or more years. Pakistan’s economy qualifies under both the definitions.

A recession is a decline in GDP growth for two straight quarters. In Pakistan’s case, the GDP has declined constantly for eight quarters.

So there is no doubt that we were in long recessionary phase that culminated in depression in the economy. But there is another aspect that was extraordinary - the output was constantly declining but inflation remained stubbornly high.

In pure recessions, as the demand goes down inflation also declines. Stagflation is an economic condition that combines slow growth and relatively high unemployment with rising prices, or inflation. ... The problem is that the normal responses to the two major components of stagflation—recession and inflation—are diametrically opposed.

There is no doubt that when this government assumed power the growth rate was highest in past two decades, inflation was very low and productivity was high. Unemployment was also low at 5.8 percent.

This government mismanaged the economy and passed on the blame to the past regimes. The mantra that this government had to take loans to pay back the past loans would have some creditability had it not added huge foreign loans over and above the loans that were services.

According to statistics, this government obtained foreign loans worth $27 billion out of which it returned past loans worth a little over $19 billion. Where did the remaining over $7 billion loans go? We would be now servicing $7 billion additional loans.

Every Pakistani wishes that the economy improves. But ground realities create many doubts.

Let us for instance wait for the performance of the Federal Board of Revenue in the first quarter of this fiscal.

With a huge surplus over the target in July, the FBR should achieve at least the targeted revenues.

If that milestone is achieved, we could hope for better revenue collections.

If the target for the second quarter is achieved the turnaround in at least revenues would be visible.

As far as exports are concerned, let us look at ground realities. Our textile sector is operating at full capacity. This means that we cannot expect any appreciable increase in the exports from the textile sector.

We lack exportable surplus in textiles. Our capacities in textile sector have been truncated appreciably in the last four years.

More than 125 spinning mills have closed down for good.

Those operating with obsolete technology are merely surviving.

Exports of yarn have not picked up, but the domestic demand has more than compensated the loss of export market to the spinners. Many garment and knitwear units have also closed down.

One of the top 100 knitwear exporters from Lahore has reduced operations by 60 percent. It is planning to convert the factory premises into real estate. There is no dearth of orders in the apparel sector, but they have capacity limitations.

The home textile sector is also doing well. The added orders of face masks and other COVID-19 related accessories have facilitated them in utilising their idle capacities.

These however are low value-added products. The home textile industries in competing economies are not accepting orders for face masks and it has provided opportunity to Pakistani home textiles.

However, we cannot expect more than seven percent growth in textile exports that account for 60 percent of our exports. Export performances in the next two quarters would give a real picture in this regard.