Economic indicators: not too bad

Final departure of Ishaq Dar has done more good than harm to the economy

The final departure of Mr Ishaq Dar has done more good than harm to the economy. Despite the politico-religious dharnas and the ongoing civil-judicial-military test match, the economic indicators for the first four months of the current fiscal year are not too bad. The prevailing situation does affect confidence in the future state of the economy, which has a direct bearing on the current account balance. Even in this case, one sees that the exports which had been declining in absolute terms, are now looking up. Export growth is nearly 10 per cent. With its energy needs satisfied, textile industry is leading the way. Import growth is, however, more than double of the export growth. This is a problem in the near term. Over the medium term, the composition of imports suggests a strong revival of the economy. Machinery contributes 19.16 per cent, transport 6.7 per cent, agricultural and other chemicals 14.8 per cent, metal group 9.14 per cent and petroleum 23.13 per cent (14.27 per cent of which is liquefied natural and petroleum gas). The trade deficit is huge, but for the better. The current account deficit is also more than double at $5 billion. With remittances recovering, 74.4 per cent rise in foreign direct investment, the increasing impact of regulatory duties imposed recently and liquid foreign exchange reserves of $19.5 billion, the current account is manageable through roll-overs of short-term debt, access to bond market and friendly donations. Heeding any technocratic advice to rush to the IMF would be at the cost of growth that has already taken long to revive. Even the most generous programme would stunt growth and delay the process of offering the bulging youth the productive jobs, the best alternative to joining the disruptive forces of obscurantism and chaos.

Export growth and the changing composition of imports are a reflection of the return of growth to the large-scale manufacturing. The sector recorded a growth of 8.36 per cent. This growth is led by iron and steel products (47 per cent), automobiles (29.43 per cent), engineering products (25.97 per cent), coke and petroleum products (13.74 per cent), nonmetallic mineral products (12.35 per cent) and food, beverages and tobacco (10.12 per cent). There are clear signs of another good year for agriculture. Cultivated area has increased, as has the fertiliser off-take. Sales of agricultural machinery are up. Agriculture credit is reaching even the small farmers, thanks to the e-credit programme in the largest agricultural province, Punjab. Private-sector credit on the whole is rising, with a significant increase for fixed investment. The public sector has made its own contribution by releasing a record amount of Rs221.4 billion in the first quarter. There is some pork barrel effect due to the forthcoming elections, but the bulk of it relates to investment in energy and roads. The impact of CPEC is beginning to be felt in imports and investment.

While this spending goes on, inflation is still as low as 3.5 per cent. For the week that ended on November 23, 2017, prices of essential items increased by 2.06 per cent. The high twin deficits are so far not fueling inflation. The first quarter fiscal deficit of Rs440.8 billion is significantly higher than projected. But for the provincial surpluses of Rs51.6 billion, contributed mainly by Sindh and Balochistan, the deficit would have been higher. The good news is that the FBR tax collection is 22 per cent compared to 4.5 per cent in the corresponding quarter last year. So, beware the IMF and the technocrats.

Published in The Express Tribune, December 1^st, 2017.

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