There is a prevalent assumption that currency depreciation is a trigger for the rise in exports. This historically does not prove true when we discuss the economy of Pakistan. Dollar was trading for around Rs 60 in 2008 and exports were over $20 billion in those days whereas dollar is out of the reach of many today and has been trading for over Rs124 in the open market whereas the exports do not present corresponding better picture in the first eleven months of the current fiscal. Some believe that 15% rise in the exports during the current financial year is due to the 15% depreciation in the rupee since last December. No one seems to actually know the reason of the decline in exports from the peak of $25 billion to around $21 billion every year over the period of last few years with the exception of the current fiscal. Export figures of the current fiscal may be somewhat better due to 15% depreciation in the currency over the period of last six months of the current fiscal.
There are individuals who made tall claims of enhancing exports and were determined not to let Pakistan become a kind of trading economy. Claims were made to make Pakistan a manufacturing hub. All claims have fallen flat. Current scenario is not encouraging since the country is facing balance of payment crisis and the economic managers at the helm of affairs might be getting ready to go to International Monetary Fund (IMF) for a bailout package, which may put further pressure on the economic activities in Pakistan. There is a massive number of businessmen who are never in favor of going to IMF since they consider it stifling the economy.
As far as economic progress of Pakistan is concerned, it seems as if Pakistan moves one step forward and three steps backward unlike other economies where exports have increased with every passing years and their economic prosperity is evident from the fundamentals. It is difficult to gauge whether Pakistan’s economy works on fundamentals like the rest of the world or on ad hoc decisions of a few individuals who decide what to do and what not to do for the political gains. It is heartening to see that Pakistan’s economic managers have not done enough to fix the economy.
Trade balance of Pakistan with India, China, Indonesia, Turkey is not in favor of Pakistan. Pakistan faces at least $8 billion trade deficit with its very dear friend China. Import substitution concepts seem to have disappeared and there is only one concept and that is to depreciate the rupee and increase the exports. Imports have already crossed $60 billion mark so far and may touch $62 billion after the last month of the fiscal is over. How would the current account deficit, currently at $16 billion and might touch $18 billion by the end of the fiscal year, be managed? Total foreign exchange reserves of the country are around $17 billion which is a big concern for the economy worth $300 billion. Pakistan’s rating outlook was downgraded to negative by Moody’s Investors Service, last week, which may further dent the economy. Pakistan’s economic managers don’t seem to be ready for the outflow to China in the days to come which is being estimated in the range of $3 billion per annum. At present, the repatriation in terms of profit and dividends is around $2 billion every year. What is going to happen when repatriation starts to China? How Pakistan would manage this massive outflow and what its impact would be on the economic progress, is a food for thought.
Market is abuzz with the news that the central bank issued Rs350 billion fresh notes for Eid and that Eid spending was over a trillion rupees in Pakistan which calls for import substitution strategy and foreign investment in manufacturing sector. Nothing seems to be working in this regard. Advantage of being the 6th most populated country in the world with population growth rate of 2.4 percent has to be projected to the potential investors and strategies need to be chalked out to strengthen the buying power of the middle class which is the driver of the economy in almost every country across the world.
Greater monetary expansion is a sign of higher economic activity in country. It must be noted that according to the State Bank of Pakistan (SBP), during the first 10 months of this fiscal both monetary expansion and the private sector borrowing were lower compared to last year. Private sector borrowing has not been for fixed investment but for working capital needs during the current fiscal. As far as manufacturing sector is concerned, textiles borrowed more whereas there is decline in the borrowing of food products and beverages etc. Chemicals sector instead of borrowing retired debts during the current fiscal. Foreign investments in infrastructure and power sector has helped the economic growth to some extent. GDP growth rate was 5.3 percent and the monetary expansion was 13.69 percent last fiscal year. One can easily fathom the GDP growth this year with all the figures mentioned in this write-up.