Economic Roundup Are We Ready, Sir?

There is a Chinese saying: If one is facing hundred problems then he should solve the least one first so the number of problems is reduced to ninety-nine. One must continue defeating lesser evils and soon there will be dozens of challenges left to tackle. The shorter the list the better it is. No matter how big the few challenges are.

In case of Pakistan, this adage does not apply as ferocious ditch of problems is deepening day by day. Problems are surfacing and resurfacing as a down-to-earth system is missing as a whole.

And there is a modern saying: One cannot attain economic prosperity without tranquillity, peace and serenity. Otherwise rich can become richer, wealthier can climb up the ladder of the wealthiest but the nation remains poor. The government is struggling to maintain law and order. It has crafted a short-to-medium term economic plan to boost economy. However, economic indicators of the first quarter of current fiscal year present a dismal picture.

Inflation
Rising to new heights day by day and clobbering the already-wounded masses. Essential commodities are becoming dearer and dearer. In mid-November the Sensitive Price Indicator (SPI) for the lowest income group i.e. up to 8,000 rupees, increased 0.58% to reach 206.89 points. The SPI for all income groups rose by more than 14%.

Headline inflation is also nearing the double digit. In October, inflation rate soared to 9.08% from 7.39% in September’ the fastest growth in fifteen months’ stirred by higher food prices.

Recent surge in benchmark interest rate spurs the price hike. The benchmark discount rate has entered the double-digit zone as SBP raised the discount rate by 50 basis points or 0.5% to reach 10%. It increases the cost of borrowing and thrusts the cost of manufacturing.

Falling Rupee
Frequent fall of rupee against dollar is festering to the economy. We are a consumer society and liberalized global trade regime had opened the gates for foreign products. Markets are flooded with Chinese, Indonesian and Turkish household essentials. We wear and tear China-made fabrics and shoes be it Bata or Service or the brands of Ideas of Gul Ahmed Textiles. Higher imports means higher outflow of foreign exchange.

By the end of November, the rupee continued to shed its value and was hovering at Rs 108 a dollar. This is so because the government is making payments to international donors whereas foreign exchange reserves are shrinking fast.

Tax Collection
The first two months of current fiscal year fetched only 271 billion rupees. In the first month of FY2013-14, FBR managed 124.257 billion rupees while in August the revenue generation stood at 147.221 billion rupees, showing a healthy growth rate of 17% over the corresponding month’s collection last year.

Despite such an encouraging growth, the collection was not enough to hit the monthly target of Rs295 billion. The collection in the first two months was 11.3% of the total annual target of Rs2.475 trillion. Tax collection target for FY2013-14 is set 28% higher than the last year’s target of Rs. 1.936 trillion.

Under the IMF programme, achieving this year’s revenue target is the key performance criteria in addition to the budget deficit target, which again largely hinges on the tax collection. The government will face difficulty in acquiring the next tranche of IMF loan if it misses the tax collection target.

On Pakistan, the CIA World Factbook says:
‘Pakistan must address long-standing issues related to government revenues and energy production in order to spur the amount of economic growth that will be necessary to employ its growing population. Other long-term challenges include expanding investment in education and healthcare, and reducing dependence on foreign donors.’

Foreign Direct Investment
The ray of hope is progressing FDI as in the first four months of current fiscal year, foreign investors injected around US$ 284 million, up by 12.5%, compared to FDI worth US$ 252 million a year ago for the same period. The oil and gas sector remained an apple of foreign investors’ eyes. The sector fetched a net foreign investment of US$ 146 million. Progressive foreign investment in chemicals (around US$ 59 million), financial business (about US$ 55 million), tobacco (US$ 45 million) and food (around US$ 32 million) ensured overall growth in FDI.

The government has recently declared sell-off of a dozen state-owned entities. National flag carrier, PIA, and Pakistan Steel Mills top this list. This is a smart move to bridge fiscal deficit and make the foreign payments. The government has two challenges ahead: Will it manage to subdue political hue and cry against the sell-out? Will the ailing state-run public sector enterprises fetch desired prices? The government, perhaps, can be able to ignore the clamour but attracting decent price is a difficult task.

Bleak Days Ahead
This time around winter will be severe for us. The cold winds will bring depression and agitation in December as the country will be facing an acute shortage of natural gas. It is feared that the gas supply will drastically be cut by a mammoth 70% against the overall demand. It means if we need 100 mmcfd gas, we will get 30mmcfd only. The first and foremost challenge will be of managing the shortfall. The Punjab and the KP will get hurt badly. Balochistan is no exception too notwithstanding the fact that the province produces the gas. There will be no CNG in December and January for public and private transport.
Are we ready, sir? Have we solved the tiniest problems?