A tough year

December 25, 2022

With rising inflation, shrinking businesses, rampant unemployment, 2022 was a difficult year for most people

A tough year


he year 2022 was perhaps the worst economic year in Pakistan’s history. Nothing went right; we experienced the highest ever inflation and interest rates. The stability is still elusive.

Governments have been shy of policy measures that may cause short term distress for consumers but are good for the economy in the long run. In fact, governments expecting to lose power appear to be taking popular measures in their last days to aggravate the challenge for the next government.

The national economy at the start of the year 2022 was not in a good shape; but as the year ends it’s in an even worse state. If an addiction to foreign loans was a hallmark of the last year, this year the dependence is even stronger. In the past, we had sought foreign loans mostly for development but during the past four years the foreign loans have been used for consumption and to plug our fiscal deficit. The consumer loans are a burden on the state as successor governments have to repay those with heavy interest.

The difficulty to obtain new loans has been increasing. Now, instead of long-term project loans, we are constrained to seek short-term high-interest loans that have been serviced in a year. Having consumed those loans we are in hectic efforts to either rollover the loans or seek new high-interest loans to return the earlier loans.

Long-term loans carry nominal interest rates (1-2 percent) but short -term loans carry an interest rate of 4-5 percent. Our failure is that we convert the short-term high-interest loans into long-term ones through regular rollovers but without the benefit of lower interest rates.

We accelerate economic growth using consumer loans (as we did during the last fiscal). The accelerated growth in Pakistan in recent years has been import-led. High imports then create a balance of payments crisis (as it happened this year). The government was then forced to curtail imports through administrative measures. This resulted in a slowdown in manufacturing. Because of the import curtailment by the regime most of the industries, including auto, engineering and home appliances are operating at 50-60 percent below their capacity.

The energy crisis has reduced the demand for textiles and apparel - our main export sector. As a result, exports are declining. In the open market, rupee is being traded at Rs 10 per dollar higher than its interbank rate. This difference is a lucrative incentive for overseas Pakistanis who are now sending home remittances through hundi or hawala with the result that workers’ remittances through formal channels have declined appreciably. The Indian workers’ remittances have increased by 5 percent during this year.

The low rupee value, high interest rates and inflation hurt businesses but they impact the consumers even more. The rupee had traded at Rs 178 against the dollar in the last week of December 2021. Its current rate against the dollar is 225 and rising. The inflation at the start of the year ranged 13-14 percent, it has been above 22 percent in the recent months.

The growth in Pakistan in recent years has been import-led. High imports create a balance of payments crisis like this year. The government was forced in the end to curtail imports through administrative measures. This resulted in a slowdown in manufacturing. 

The State Bank policy rate was in double digit at the start of the year, it has now crossed 16 percent. The losses of public sector enterprises continued to increase but the governments failed to privatise any loss-making entity in 2022. The power rates have increased sharply this year. But the line losses have also jumped from 15.8 percent to 17.4 percent. The bill recoveries by distribution companies declined from 93 percent to 83 percent this year. The circular debt is increasing despite the price hike.

The net result of these three factors was that the businesses shrank during 2022. Unemployment increased and there were no new jobs. Many companies curtailed production and shed jobs. The income of the common man remained stagnant or increased at less than the prevailing inflation rate. The poverty increased.

The New Year is traditionally a time for hope but most Pakistanis would start the year 2023 in despair. Even globally, more people are pessimistic about 2023, according to a survey by a US firm. In Pakistan, a recent survey has revealed that more than 60 percent Pakistanis would prefer to live abroad. This is a measure of the difficulties they are having in their own country. The disappointment has increased in 2022 and even many businessmen are thinking of ways to transfer their resources away.

The agriculture sector is in a greater disarray than the industry. We harvested our worst cotton crop in years in 2022. We are importing wheat in large quantities. The floods have devastated a third of the country. We do not have the resources to rehabilitate the affected people. Flood water has not receded from many areas in Balochistan and Sindh. Inputs for agriculture are costlier and out of reach for many farmers.

The year under review was also the worst year as far as the writ of the government is concerned. Both the federal and provincial governments succumbed to public pressure. Public roads and highways throughout Pakistan were blocked for hours by small gatherings of 20-40 protestors. The law and order situation impacted the business sentiment.

There was no reprieve for ordinary Pakistanis. Their incomes remained stagnated while the rates of essential daily use commodities went through the roof. The minimum wage of Rs 25,000 is not enough to even provide adequate food to an average family of 6.5 people. Still, a majority of workers were denied even this minimum wage; most got half the officially set minimum wage, some even less.

The spending spree at the official level continued. In 1985, the then prime minister Muhammad Khan Juneju, had ordered all ministers to use 800cc cars made in Pakistan. The prime minister was entitled to a 1300cc local car. Predictably, he was laughed at. Now the ministers want bullet-proof cars and a convoy of security vehicles following them. The protocol for the prime ministers matches that of the president of the United States. We are a poor state and one of our former prime ministers did not live in the lavish official prime minister’s residence. Instead he commuted to his office on a helicopter from a more lavish personal residence. When our leaders inform the world that Pakistan is a very poor country, their lifestyle in Pakistan and on foreign tours belie the claim.

Why should a leader of a poor country live in so lavish a style on taxpayers’ expense that is denied to the prime minister of Japan? The Punjab Assembly recently passed a bill to raise the salaries and perks of the provincial ministers. The assembly has been in session for the last four months. It has earned the year 2022 the dubious distinction of holding perhaps the longest and most non-productive sessions of the provincial legislature.

The writer is a senior economic reporter

A tough year