CORRECTIVE MEASURES SHOULD RESPOND TO OUR OWN NEEDS
Dec 01 - 07, 2008
The economy of Pakistan heavily relies on its exports. On an average the total exports from Pakistan constitute around $20 billion. Out of the total export receipts, 50 percent is contributed by the textile sector while remaining $10 billion earned through exports of rice, leather, fruits, cement and other raw materials. The exports other than textiles will be achieved because non textile exportable items either are sold in natural form or very little value addition is involved in them.
However the textile exports on the back of rising cost of inputs including costly financing, expensive gas, electricity and fuel may find it hard to access in the export market due to uncompetitive price offers. The business community was also confronted with the campaign launched by vested interests especially Israel and foreign media distorting the image of the country as a haven for terrorists. This campaign has made the task of businessmen to export their quality goods under the logo of Made-in-Pakistan extremely difficult due to tarnished image. Despite the fact that Pakistan value added textiles are far superior as compared to many countries the international buyers pay much less with the logo of Made in Pakistan and high when they put their own labels on finished textiles. The difficulties faced by businessmen from Pakistan require efforts on social, diplomatic, and media level to improve the situation.
Zubair Motiwala, a leading textile industrialist, prominent business leader and a member of the committee constituted by the Prime Minister for revival of the economy told PAGE that the economic managers of the country may not be able to reduce cost of inputs in near future as IMF would now be monitoring even the core components of the business regime in Pakistan.
Yet another problems currently faced by the businessmen is softening of commodity prices and low demand which are feared to hit country's exports in terms of value this financial year. However, the softening of commodity prices may have a positive outcome as well as it would help containing the current account deficit at $9.23 billion from an earlier estimate of $12.53 billion mainly due to declining pries of imported commodities.
The sharp cut in oil prices is being widely welcomed at large by the private sector consumers yet from government's point of view the decline in oil prices is negative for tax collection as the government collects handsomely through oil levies. It is interesting to note that commodity prices have come under tremendous pressure on the back of global recession.
The sector wise impact of lower commodity prices indicates that the phenomenon should reduce working capital demand which would improve the liquidity conditions of the banking sector in the country. However, tight monetary conditions coupled with slowdown in asset growth should overshadow the positive impact of commodity price meltdown in the near term.
The sharp meltdown in furnace oil prices is one of the keys to easing the cash flow concerns that have beset the sector over past 18 months. An expected 13% hike in power tariff along with the lower cost of generation should help narrow the price-cost gap for the power generating sector. Yet another positive development due to softening of coal prices internationally to the tune of 56 percent and consequently 93 percent cut in freight charges is bound to reduce the cost of production especially of the coal consuming sector like cement industry. Since the cement prices are stable and no pass over is witnessed, the gross margins across the cement sector should remain strong for the next 2-3 quarters.
There is good news as well on the textile front. Contrary to the fears of a major shortfall in cotton crop this year, some cotton experts assessed the cotton crop arrivals were surprisingly upbeat and may take the size of the crop beyond 14 million bales this year. No wonder the expected bumper cotton crop is a pleasant surprise in the gloomy economic situation prevailing in the country. So far the cotton arrivals reported at ginneries stand at 7.17mn bales, + 22% YoY. Last year the cotton arrivals constituted 51% of the year's crop (11.60 mn bales) in the same period.
On the basis of the same run-rate, free from any impairment of crop due to pest attack/bad weather etc, it is safely assumed that cotton crop during current financial year 2008-09 would come in as high as 14.11million bales, 8-22% higher YoY, said sources in cotton circles.
It is interesting to note that cotton prices have fallen sharply in the last 2-months, driven by weaker global demand outlook, pressure on global commodity prices and indications of a better-than-expected domestic crop. Domestic prices are down 18% in Nov-08 (32% lower than Sep-08 peak) at Rs2, 925/maund. However, the cotton prices are still running at 19% YoY but if they remain close to current levels for the rest of the year the average would come in 4-6% higher during the current fiscal.
The better cotton crop this year should positively impact GDP growth besides a positive impact on Large Scale Manufacturing statistics due to the heavy contribution of cotton ginning & textile (24.49% of LSM). The incremental growth from cotton ginning could potentially offset the broad based manufacturing slow-down. High domestic cotton crop would also reduce FY09 import bill by US$500mn via lower imports.
The business environment in Pakistan demands some corrective measures to lend a support to business environment. Currently, the cost of basic inputs like electricity, gas, motor gasoline, diesel and other raw materials has been fixed at international level while prices of our export items are not determined in accordance with international price fixing formula due to reasons mentioned above. Pakistan is required to reframe its economic policies in accordance to its own environment and domestic needs as did by China.
PAKISTAN'S FOREIGN RESERVES POSITION
The total liquid foreign reserves held by the country stood at $ 6,596.2 million on 22nd November, 2008.
The break-up of the foreign reserves position is as under:-