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It’s time to get rid of rose-tinted glasses

LAHORE: Our economic planning is based on optimistic estimates. For more than a year, policymakers have been banking on falling global commodity prices, lower inflation and a stable rupee. Their hopes are periodically dashed and goals are missed.

There are no fallback plans when the announced estimates do not materialize, which increases economic hardship. The Minister of Finance and the Governor of the Central Bank have been wrong time and time again.

The rupee has continued its downtrend despite claims by financial advisers that it will recover Rs8-9 of its value against the dollar. Steps taken by the central bank to raise the policy rate by 2.75% have not provided any support to the rupee.

Economic wizards are hoping that remittances will increase or stay at current levels, but as global economies open up and Pakistanis overseas have other ways to spend, remittances are sobering. Incentives on remittances have been increased to make them attractive.

Imports reached abnormal levels in June 2021, which were initially attributed to increased imports of machinery and raw materials. In the end, the car import bill turned out to be higher than the machinery import bill.

The bill for petroleum products has also skyrocketed due to rising global crude oil rates. Food shortages in our agriculture-based country have triggered much higher food imports.

In June, the impression was given that the increase was a one-time event and that the import would ease over the next few months. That hope was dashed as there was a nominal drop in July’s import bill, but each new month thereafter created historic highs.

In November, it was almost $ 8 billion, almost $ 3 billion more than our exports. Now the central bank has admitted that imports will decline after two to three months.

The increase in imports has been attributed to rising world commodity prices and this is also partly true.

The increase in exports, however, has been attributed by the economic directors to the policies of the current government. They overlooked the fact that rising world commodity prices have also inflated our exports.

This year’s exports grew 27 percent in the first five months in terms of value, but the increase is much smaller in terms of quantity. This means that as world commodity prices fall, there will also be a decline in our exports.

We need to increase the quantity to support export growth. Garment sector capacities are increasing, but at a normal rate (exporters increase skilled workforce through in-house training) then add machinery (cost of clothing machinery is low compared to spindles or air jet looms).

The bulk of machinery imports are in spindles and looms where the product is of low value. Increasing exports on a sustainable basis would take time and would depend mainly on the ability of the government to create a skilled workforce for the garment sector. We are still dependent on foreign supervisors in the clothing industry (mainly Sri Lankans).

The Sialkot incident created fear among foreign workers. The state has done its best to allay their fears. This further underlines the importance of a skilled national workforce at all levels in the garment sector.

The impact of the Sialkot fiasco has not been taken into account by our economic officials, although the private sector has nightmares about the repercussions of this tragedy. Our SPG status is in balance. Despite the assurances of our economic officials, it is a fact that the European Union took human rights violations and restrictions on the media very seriously and the Sialkot accident added the dimension of mentality self-defense of the crowds in our country.

The capital market has never been the real barometer of our economy. This is because only well established and successful companies are listed on the Pakistan Stock Exchange.

Forty percent of the market capitalization comes from state-owned enterprises (mainly from the petroleum sector). Commercial banks, fertilizers and cement sectors with less than 100 companies are the next heavyweights accounting for over 55% of market capitalization.

Most of these sectors post profits even during recessions. Those who buy stocks to keep them in these companies are not at risk because they regularly receive high dividends.

The value of these stocks can fluctuate, but over the long term, the value of those stocks always increases. Market fluctuations are mainly due to speculators and manipulators, who attract small traders for a while, then switch off to make a lot of money (given the volatile nature of our economy, they always have a rationale for pulling the actions down).

There is, however, no justification for very bullish behavior in an extremely volatile economy. To be sure, regulators have let small investors out of the capital market.