FY11 - HOPES AND FEARS

AMANULLAH BASHAR
(feedback@pgeconomist.com)
July 05 - 11, 20
10

Today, the economic situation portrays a gloomy picture in view of the persisting inflation, depressed dollar versus rupee, and ever increasing cost of gas and electricity. All are adversely affecting the state of the economy yet there are some positive signs as well like improving macroeconomic stability reflected in the unexpected GDP growth at 4.5 percent at the end of financial year 2010.

In fact the beginning of the new financial year 2011 is associated with a mix of hopes and fears. While the firm resolve of the private sector to take the challenges with courage glitters the hope the over-dominant role of the international donor agencies in economic decisions are causing concerns and fears in the private sector. The violence and persisting law and order situation is yet another factor which depresses the economic growth and shies away the domestic and foreign investments.

The corruption rampant in public and private organisations not only negate the concept of good governance in the society but also is counterproductive to good economic decisions of the government. In fact, it is the need of the hour to develop a strong public and private partnership strictly focusing on a collective fight against corruption in order to ensure good governance. The issue of fake degrees of the law makers in the national assembly is not only a laughingstock locally and abroad but in way shatters the confidence of the masses on creditability of the institutions. Actually being illiterate or ignorant is not a crime but to cheat the nation is a serious crime and amounts to tarnish the image of the country.

In most developing countries corruption was not a marginal problem but a systematic all encompassing system that haunts the society totally. It is the time that all sections of society to unite in fighting against corruption. There is a need for collective action to defeat the menace of corruption and proposed accountability, leveling of salaries between public and private sector and reduction in discretionary powers in the public sector.

On the macro front the most disturbing factor is the persisting high rate of inflation which consequently is leaving no space for the policymakers to bring down interest rate. The basic reason for higher interest is stated to be excessive borrowing by the government which on one hand is leaving a little share of the bank credits for the private sector and stalling economic growth in the country on the other.

Apart from tough competition given by the National Savings (NSS) to the banking sector, due to two variables including lower lending rates and 5 percent floor on PLS savings account, the flow of financial savings is likely to remain volatile and consequently restrain symmetric decline in interest rates in the coming months.

The cut in interest rate would be possible if the government reduces borrowing from the banking sector to provide a space to the private sector with a view to contain inflation and the interest rate.

Although the food inflationary pressure is subsiding around the world on the back of lower oil prices it continues to persist in Pakistan obviously due to ever increasing electricity and gas tariff as well as hike in fuel prices including gasoline, diesel and CNG causing multiplier effects on general prices including food prices. For ensuring food security and affordability of prices fuel prices will have to be made affordable to contain inflation.

According to informed sources, banking spread was recorded at 7.35 percent in May 2010 while interest rate spread of the banking sector declined to 7.35 percent in May-10, down 4bp MoM basis.

The interest rate spread on outstanding and fresh loans also declined by 4bp and 5bp to 7.35 percent and 5.88 percent respectively last month, sources said, adding that for January 2010 to May 2010 the banks spread declined to average 7.32 percent, down 29bp YoY.

Spread on outstanding loans headed lower MoM on the mix of 2bp decline in lending rates to 13.4 percent and a similar increase in deposit cost. Meanwhile, spread on fresh loans declined solely due to lower yield on fresh loans i.e. 13.25 percent.

It may be recalled that post contraction of twin deficits in the last consolidation cycle (1998-2003), lending rates declined to low single-digit which also kept spread relatively low, notwithstanding with high asset growth.

However, spread increased due to higher lending rates post expansionary policies while deposit cost remained upward on robust external account. A secular decline in spread over the medium term is expected due to asymmetric trend in interest rates as deposit cost is expected to remain relatively downward sticky.

UNAFFORDABLE ELECTRICITY PRICE

The abrupt and unjustified increase of 7.6 percent in power tariff last week was taken as a disrespect to the general opinion raising hue and cry for quite some times to cut down electricity tariff so that it could be affordable for the average income groups and to bring down the cost of production at competitive level in the export market.

The industrial consumers have expressed dismay and shocks over what they called the regressive increase in power tariff by 7.6 percent. The industrial consumers termed it as unjustified move which seems towards crushing of the economic and industrial activity.

The industrial consumers said that the government has once again increased power tariff under the IMF dictations and totally ignored the plight of industry and the people of this country.

The trade and industry feels that the abrupt and unannounced decision to raise power tariff by 7.6 percent has proved that the present government has no mercy for the masses as it is blindly acting upon the diktats of anti-Pakistan elements. The irritated industrialist demanded of the government to tell once for all that how many times and to what level it will increase power tariff for the rest of the year so that industry could make some its own decision.

DEVELOPMENT OF BRAND CULTURE IS A POSITIVE SIGN

Despite all economic odds and discouraging law and order situation the private sector in Pakistan has shown the firm resolves to contribute to the national economy.

In this regard the 3rd Brand of the Year Awards were an encouraging sign in which some 162 companies were awarded by Prime Minister Syed Yousuf Raza Gillani for promoting their brands on the national and international levels. Paying glowing tributes to the private sector, PM Gilani said the role of business community becomes more vital when it comes to promoting the soft image of Pakistan through reliable brands with the label of "Made in Pakistan" within and outside the country.

It is the private sector that can translate the dream of prosperous Pakistan into a reality. "I would like to congratulate the organisers of this event to gather all the major brand leaders at a single platform to attend the ceremony of 'Brands of the Year Award 2009'," said the PM. This award ceremony is first of its kind in Pakistan and its sole objective is promotion of brand culture in the country.

In post WTO international business scenario, brand empowerment has become a prerequisite for success of every manufacturer. Brand development involves appropriate utilisation of intangible assets like knowledge, information, creativity and innovation with tangible assets. Beside entrepreneurial gains, creators and inventors of brands also contribute to sustainable economic growth of a country.

Due to a comprehensive selection procedure based on thorough brand research, extensive consumer survey and analysis of the relevant group experts this activity has achieved international respect. The gigantic billboards reading logos of Brands of the Year are seen everywhere from Karachi to Kashmir. The private sector has assumed the role of frontline player in the economic field.

At 170 million, Pakistan's population presents a large market, and a sizable work force, equipped with the right skills and expertise. It is a proven fact that today's fortune brands of the world are sitting on the driving seat of the global economy. It is estimated that 40 percent of the total wealth of the world is owned by 500 fortune brands.

Though a number of recognized international brands are utilising the raw material and skilled manpower of Pakistan to produce world renowned products manufactured and tagged right here Pakistan, we could not produce such a single internationally acclaimed brand of our own, said the organiser. "Nevertheless, we have the capability to produce world class brand as we are the one who manufacture footballs which are being used in the world's popular game of soccer since decades. Foreign companies are marketing our surgical equipments with their brand names all over the world."

We are the 5th largest dairy producer of the world but have no recognised Pakistani brand in this category as well. It is a challenge to our business community and entrepreneurs to build our own brand without wasting any further time.

"My government is ready to extend all possible support in this context but you have to put your house in order as well. Brand of the Year Award was a step in the right direction to break the inertia and a way forward to promote Pakistani brand at national and international level," said the PM Gilani.