The brewing economic pot

Strange as it may sound, economic opportunities seem to be coming Pakistans way from unthought-of global developments and there are already clear indicators that economic activity per se at home is significantly picking up at least on the micro front. We can measure this either in quantitative or in monetary terms, i.e. in case of the former the movement of commodities traded and produced in volume terms and for latter in value terms and this preferably over an internationally benchmarked currency (say the dollar). In my book while the value increase is welcome, the litmus test of an upward movement in economic activity is when the volumes of goods and commodities a country turns over during a given period register an increase. The good sign in our case is that in the recent months the value of Pakistani exports has gone up and there is an upward swing in quantum terms. Textiles, which constitute nearly 70 percent of Pakistans exports have seen a big jump in value terms (owing to a global shortage and climbing price of cotton) and more importantly also in quantitative terms being up on a month-on-month basis from May to September 2010. With the global investors and financiers losing confidence, and even interest in the financial markets owing to factors such as the recent economic crisis and financial meltdown, their focus for investment has instead has turned towards commodities, grains in particular. So as a result, cotton is on a year-on-year basis going up by more than three times (currently trading at $1.40 at NY spot rates), Corn about 120 percent ($6/bushel), and the list goes on. The prices of wheat, sugarcane, rice, cocoa, etc all have at least doubled. Fortunately for Pakistan, this presents a golden opportunity. We seem to be entering a period of significant enhancement in our revenue inflows to finally start posting trade and current account surpluses. We have already seen this happen with the current account balance in August 2010 Exports in FY-2010 exceeded the official target by $1.0 billion rising to $19.38 billion - already nearly 10 percent higher than $17.68 billion recorded in FY-2009. The Commerce Ministry feels that exports rose as a result of production and market diversification, both in terms of range of products exported, their destination and their higher value-addition. If so, this is yet another encouraging sign. Textiles and ready-to-wear garments exports of $10.244 billion up from $9.572 billion in FY-2009, rice exports worth $2.3 billion and fruits, vegetables and jewellery were the key items exported. With international prices of these grain commodities and gold trading at their all-time highs, it will have a good effect on our export revenues during the months ahead Also, other new high-value products like electric power meters, PET bottle grain resin and glitter for fashion garments are being added to exports. Our import bill for FY-2010 was $34.70 billion, a shade less than $34.82 billion in FY-2009, as the import growth was primarily restrained by declining prices of oil. Likewise, the trade deficit (TD) narrowed down 10.54 percent to $15.32 billion from $17.13 billion in FY-2009, because of higher exports. Pakistans current account deficit (CAD) narrowed down in FY-2010 to $3.507 billion from $9.261 billion in FY-2009, according to the State Bank of Pakistan (SBP). This development mainly attributed to the narrowing down of the balance of trade, a decline in the prices of imported oil, and a record inflow of remittances from overseas Pakistanis. The remittances in FY-2010 totalled a record $8.906 billion. With a strong upward futures graph because of the above recounted reasons, we have great potential of posting healthy current account surpluses. With an expanded home market activity due to booming commodity prices, there exists an unparalleled economic opportunity in the Pakistani market place in the coming months So then why the gloom and doom amongst the people and experts? Well, mostly because, there exists an unsaid and perceived mistrust in the governing ability of the present government. That they will yet again squander this golden chance by not availing it in a manner that it yields transparent, people-friendly, equitably distributed and optimum results. Corruption, cartels, lobbies and powerful interest groups would tend to direct the flow of revenues where it gets concentrated in a few hands, rather than benefiting the people at large (97 percent of the banking profit in Pakistan this year was posted by just five banks) The fear is that once again we might see an enhanced economic activity turn into runaway inflation, instead of providing more jobs and relief to the people. Also, some analysts are of the view that improvements on the current account side could be nullified, if the government is not prudent in selecting the portfolio of its fiscal spending. Care needs to be taken as to where the money supply is routed (remember Shaukat Azizs government committed the cardinal sin of directing cheap capital that comes a nations way once in 50 years to promoting consumption of non-productive consumer goods at the expense of the manufacturing sector). Long-term gains, instead short-term profiteering, need be kept in view. These extra revenues should be used to make provisions for visibly rising costs in industrial inputs, food and oil, and for debt repayment that will hit us sooner than we realise. Pakistan has a sizeable multilateral and bilateral debt on which servicing will resume in the coming months. Last but not least, the SBP report says that the foreign companies operating in Pakistan repatriated much lower dividends and fees in FY-2010 as compared to FY2009, which helped the CAD. This may not be the case in 2011. To sum up, the government does not have to reinvent the wheel, but to simply learn from and follow the example of China that recently announced its new five-year plan and lo and behold, it focuses upon, mainly, two things:  Market Economy with Socialist Characteristics.  Jihua (previous plans) stand replaced with Guihua (long-term programmes and strategy). This Chinese plan introduces some precise and indicative targets that the government will strive to achieve in the coming years. Again, mainly two things have been focused upon: Growth and Employment. The new long-term agenda will shun the earlier single-minded pursuit of growth and replace it with growth with all-round development, containing pollution and quickly arresting widening economic inequalities. According to the European Union Chamber of Commerce in China, the weight of 'manufacturing industries in Chinas economy almost tripled between 2003 and 2008 and this was the main reason for Chinas rapid and sustainable emergence as the new global economic superpower. We now have arrived at a point where we must insist that our political leaders guide us along the path to a future that leads to long-term sustainability, justice and prosperity for all Pakistanis. Fortunately, an opportunity to make it happen is in the making. The danger, however, is that if they again fail to deliver, the consequences would be far more disastrous than before The writer is an entrepreneur and an economic analyst. Email: kamalmannoo@hotmail.com.

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