Time to get rid of rose-tinted glasses

LAHORE: Our economic planning is based on optimistic estimates. For over a year, the economic managers have been banking on decline in global commodity rates, decline in inflation and a stable rupee. Their hopes are periodically dashed, and the targets are missed.

There are no fallback plans when stated estimates do not materialise, which increases the economic miseries. Both the finance minister and the central bank governor have repeatedly been proven wrong.

The rupee continued its downward trend despite the finance advisers’ assertion that it will recover Rs8-9 of its value against dollar. Measures taken by the central bank to increase the policy rate by 2.75 percent did not provide any support to the rupee.

Economic wizards hope that remittances would grow or stay at current level, but as global economies open and overseas Pakistanis have other avenues to spend, remittances are sobering. Incentives on remittances have been increased to make them attractive.

The imports touched abnormal levels in June 2021, which initially were attributed to increase in machinery and raw material imports. In the end, the car import bill was discovered as higher than the import bill of machinery.

The bill for petroleum products also ballooned on the back of rise in global crude oil rates. Food shortages in our agriculture-based country triggered much higher food product imports.

In June, an impression was given that the increase was a one off event, and the import would sober up in the next few months. This hope was dashed as there was a nominal decline in July import bill but thereafter each new month created historic highs.

In November, it was close to $8 billion - almost $3 billion higher than our exports. Now the central bank has conceded that the imports would taper after two to three months.

Higher imports have been attributed to higher global commodity rates and this is partly true as well.

The increase in exports was however attributed by the economic managers to the policies of the present government. They neglected the fact that higher global commodity rates also pumped up our exports.

The exports this year have increased by 27 percent in the first five months in terms of value, but the increase is much lower in terms of quantity. This means that as and when the global commodity rates decline, there would also be a decline in our exports.

We must increase the quantity to sustain export growth. The capacities in the apparel sector are increasing, but at normal pace (the exporters increase skilled workforce though in-house training) and then add machines (the cost of apparel machines is low compared with spindles or air jet looms).

Bulk of machinery import is in spindles and looms where the product is of low value. Increasing exports on a sustainable basis would take time and mostly depend on the government’s ability to create a skilled workforce for the apparel sector. We are still dependent on foreign supervisors in the apparel sector (mostly Sri Lankans).

The Sialkot incident has created fear among foreign workers. The state has done its best to allay their fears. This highlights all the more the importance of domestic skilled workforce at all levels in the apparel sector.

The impact of the Sialkot fiasco has not been factored in by our economic managers, though the private sector is having nightmares on the repercussions of that tragedy. Our GSP status hangs in balance. Despite assurances by our economic managers, it is a fact that the European Union has taken the human rights violations and the curbs on media very seriously and the Sialkot accident has added the dimension of vigilante mentality of mobs in our country.

Capital market has never been the real barometer of our economy. It is because only well established and flourishing companies are listed at the Pakistan Stock Exchange.

Forty percent of the market capitalisation comes from the state-owned companies (mostly from the petroleum sector). The commercial banks, fertilisers and cement sectors comprising less than 100 companies are the next heavy weights comprising over 55 percent of the market capitalisation.

Most of these sectors post profits even during recessions. Those that buy shares to keep in these companies are not at risk as they get regular high dividends.

The value of these shares may fluctuate, but in the long run, the value of these shares always increases. Fluctuation in the market is mainly due to speculators and manipulators, who lure in small traders for a while and then pull the plug to make hefty money (given the volatile nature of our economy they always have justification for pulling the stocks down).

There is however, no justification in highly bullish behaviours in an economy that is extremely unstable. Certainly, the regulators have failed the small capital market investors.