Foreign investors appear to once again have Pakistan on their radar screens after the stellar run on the Karachi Stock Exchange last year. DESIGN: ESSA MALIK
The next prime minister of Pakistan inherits an economy on the cusp of a recovery.
We will let that sentence sink in for a couple of minutes. The largely economically illiterate media has been portraying a vision of doom to be inherited by whoever becomes the next prime minister. But in our special report this week, The Express Tribune lays out the evidence that while some headline numbers are indeed rotten, the economy is far from being on the verge of collapse.
Quite the opposite, the next prime minister will get to take credit for his or her predecessors’ efforts. All they have to do is not panic, not screw up, and not try to reinvent the wheel.
Let us start with the bad news first. By now, several numbers have come out that show just how badly the Pakistan Peoples Party-led administration managed the government finances. Horrendous numbers are being released about how big the budget deficit is likely to be, how much the inter-corporate circular debt that is crippling the energy sector has risen to, and how much the government is borrowing to pay it all.
All of those numbers are true, but they are presented without context. Yes, the government’s finances are in terrible shape, but the underlying factors that got them there – primarily the bad management of the energy sector – are on the verge of mending themselves. The next administration simply needs to accelerate the process in order to aid a faster recovery.
As we examine in our special report, the fundamental problem of the energy sector is that the cost of producing electricity in Pakistan is greater than the government is willing to charge consumers. The private sector in Pakistan – aided by encouraging government policies – appears to be helping take care of that problem, by investing more than $14.3 billion to increase the nation’s electricity production capacity by nearly 46% over the next five years.
And the investment appears to be taking place almost entirely in the cheapest fuel sources: hydroelectricity and coal. The government can aid this process along by converting the production capacity owned by state-owned utilities to cheaper sources as well.
Given the fact that the single biggest source of the government’s fiscal deficit is the subsidies it insists on spending on electricity, lower energy costs should help the problem.
But energy is not the only area where there is progress. After the central bank started squeezing their spreads, the banking sector has started to lend to the private sector more, particularly in manufacturing. Machine imports are up, which suggests that much of the borrowing is going towards capital expansions, likely to lead to job growth. And foreign investors appear to once again have Pakistan on their radar screens after the stellar run on the Karachi Stock Exchange last year.
In a nutshell, while the picture is far from rosy, there is plenty of reason to hope. More importantly from the perspective of the electorate, there is absolutely no reason to accept the excuse from the next prime minister that he or she inherited a mess from the last administration. They are not. They are being handed an economy with enough in it for them to build a robust turnaround from the day they are sworn into office.
There is much that the next administration needs to do and none of it is easy. It needs to rein in the deficit to manageable levels. It needs to improve law and order and the general climate of investment. It needs to cut back on red tape in some areas and strengthen regulations in others.
But this is very much a workable inheritance. Our special report focuses on the areas that provide the most room for optimism, because the civil servants who begin to advise the prime minister when he or she arrives into office will be the bearers of plenty of bad news.
The government will try to set a low bar by announcing all of it in the first few days, aiming to look good by comparison. And that is fine. But just because they are badmouthing their predecessors does not mean they should not be aware of the few positives it has left behind for them.
Published in The Express Tribune, April 8th, 2013.
Like Business on Facebook to stay informed and join in the conversation.
COMMENTS (54)
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ
1729234806-0/Robert-Pattinson-(2)1729234806-0-165x106.webp "article")
1732151670-0/Untitled-design-(41)1732151670-0-165x106.webp "article")
When the crutches of subsidies are removed the economy will fall stumble stabilize and then either stand up or fall flat on its face. There was so much hue and cry on removing subsidy on diesel, it was done similarly the power subsidies need to go too. I would vouch for Mr Tirmizi's analysis as we are seeing a certain level of stability. Prices of gold, oil and dollar are not shooting but moving in a narrower band now. Lets try to get better management for our economy instead of badmouthing every government. GET OUT AND VOTE OWN YOU COUNTRY.
look closely at Bangladesh and find out the real position of the country by reading its local newspapers@Pakistani:
@Hashim: Good luck to you and show some gratitude to Belgium by not demanding shariah.
I am an MBA and the author seems to be right.
The bounce in credit comes of a very low base. Even after this bounce, the credit is still only half that in 2010 and only 20% of what it was in 2008. Also the 8.9% increase in manufacturing imports comes after a 10% decline the prior year and as such the current imports are lower than even 2010. As far as 2008 imports are concerned - they were 35% higher than 2012. The numbers I am quoting are directly derived from the graphs provided in this related Tribune article. http://tribune.com.pk/story/532405/manufacturing-credit-to-the-industrial-sector-bouncing-back-sharply/#comment-1427538
@Falcon : You make a fair point.
Too many Imran Khan supporters here who want to portray economy in a bad light to get the votes.
The guy is out of his element!
@Raza Hamdani: The media and intelligentsia never appreciated PPP good things, but the general public always recognized them by electing them in large numbers. PPP leader never cared what the establishment and their sponsored one think about or do to them; but always perform in the best interest of the people who rewards them with their votes.
A Peshawary
Pakistan lacks two very important set of variables that would have portrayed the economy's position more clearly: 1- Labor market statistics on quarterly basis; figures related to sector/industry-wise unemployment 2- Quarterly GDP
My research says the same as article. Good that I have found some reference.
Where are numbers?
Headline with slight modification:
No, Prime Minister, the economy is not collapsing--it is actually my brain that is going berserk
an analysis 180 degreeopposite to ground realities
The writer just said that the economy has all the potential to bounce back and nothing else. Whats wrong with that?
We cant afford pessimism at a time when Pakistan is going through an important historical democratic transition despite all the gloomy economic indicators.
I am a third generation industrialist based in northern Punjab. Over the last five years I have shut down three of my factories because of power cuts and high cost of doing business, and sold their machinery for scrap. The lone factory that I still own in Karachi I will be shutting down in June because of unbrearable bhata (extortion demands). I have already shifted my family to Belgium and will be joing them soon permanently. I highly doubt that there will be a turn around or things will improve or anyone will invest in this cesspool.
A good read! The PPP's economic management has always been given less credit than is due.
it sounds like a lecture on Ethics & Values by Rehman Malik. lol
@Nitu it shouldn't.
@abdussamad: As a PTI or PML (N) supported April's might fall on day other than 1st April but for sane people 1st of April is and will always remain 1st of April.
By the way ET don't have to concoct the figures like most of the politicians, the reality will not change whether you like it or not.
A Peshawary
This is rubbish. Pakistani middle class is fleeing the country because economy is in shambles and will remain in shambles.
Mr Tirmizi has it all wrong The debt to GDP ratio is approaching 9 percent and. If you compare with country's repayment capacity Pakistan is in serious trouble This time around even IMF will not give loan without preaction and serious change in senior team at FBR
Lets if I accept your argument, ur telling me that nobody in PPP has the brains to highlight such strong foundations for future ?
figures in percentile terms are vague (in absence of base figures). . The only good indication is the increase in the import of machinery ( capital expenditure ) in private sector which means increase in production and job creation. Manufacturing sector will get boost when cheaper electricity will be available to them failing which exporters may not have competitive edge over their rivals and may get their export market share reduced. . But so long economy is growing ,even at existing rate of 3% there is no reason to get panicked Transition of political power under democratic set up peacefully will also raise faith in the system which will give room for FDI ( foreign direct investment) With PML (N) and allies expected to come in power at federal level extremist activities may be reduced and this will help further FDI. There is reason for worry but no reason be panicky.. hope for the best..
Tirmizi you are fast losing your well earned credibility.
ET! do your homework boys!
It makes sense only that developed countries economies have come out of the recession and expatriate Pakistanis are sending more money back home.
Second article in one day by ET that says economy is not on verge of collapse. Very fishy. Is it time to stop reading ET as a unbiased news paper?
Finally some optimism, thank you ET! The most significant barrier to progress in Pakistan -- and the comments to this story are a case in point -- is overcoming the persistent pessimism of our citizenry.
Is Aid or Coalition funds or reimbursment to Army counted as FDI?
This is the most ridiculous thing I ever heard. Nothing was happening in the last five years tenure and now when they are gone, things are looking good for the upcoming Government. Cry me a river!!!!!!!!!!
@Hamid: Well, I think you just can't stop believing the doom and gloom. Sorry.
The entire world including the the group of 8 faced severe recession. Most affected was the US. Pakistan is part of the global economy. Our anchormen, who have no clue when it comes to economics and finance, very conveniently ignore the severe recession in the world, in their zeal to criticise the governments. And despite the ruthless and pathetic corruption mismanagement by the outgoing federal and provincial government, Pakistan's economy is still very very resilient. I feel sorry to read some of the readers' comments above. Give Pakistan a chance, guys.
If this was the case why have not we seen the results,by reading this artical one gets the impression that Pakistan is somehow beating Hong Kong ,and lastly your love for PPP is beyond my mind.
Go home ET. You are drunk!
It is a big joke that economy is not colapsing. It is a hard to beleive when dollar is at rupees hundred it is worse than Bangladesh.
For those who are wondering about the detailed report, please see additional supporting articles on each of the themes covered in the article under business section. For the rest, rather than trashing the poor analyst and creating conspiracy theories (I am not a PPP supporter as well), please take a look at the details and argue on the technical flaws of analysis and underlying assumptions rather than making sweeping assessment. All he is saying that things can't get worse than this and we are crossing the inflection point with hopeful developments to come in the coming years because of corrective economic mechanisms kicking in.
O_O if all of the numbers are true and finances are in terrible shape and underlying factors are primarily the bad management than how could u say that the next government will get to take credit for their predecessors effort. The fact is even a monkey would have been able to do a better job than PPP. It was the grip of PPP on the country drowning it into the abyss and now they r leaving every thing will get better...
I cannot believe this is on ET. Are you serious? I thought I was following a sensible website but...
Is this some kind of joke ???? Wakeup Mr Farooq . . You can not just close your eyes and pretend everything is fine . . . :@@@
False stats. If you want to see the FDI stats then it should not be compared with previous year only. You have to see FDI coming to Pakistan in pre-PPP era vs now. If you see over the period of 5 years, FDI has been decreasing. This article is deceiving as it is making an argument based on 2011-12 fiscal year which was pathetic.
Here are the stats for past 5 years FDI: http://www.pakistantoday.com.pk/2013/03/11/news/profit/pakistan-attracted-11-464b-fdi-in-last-five-years/
I don't know what kind of cigarettes you are smoking Tirmizi, but the whole world, I.e., IMF, WB, ADB, Pakistan's Internal Think Tanks, Planning Commission must all be smoking different cigarettes, because their analysis - and they are novices so you say - points to a default and melt down. Your article is an endorsement of PPP policies and their bid for re-election. You are becoming partisan instead of being impartial. Regret to say, I disagree with you completely.
When it's been the most awful 5 years, comparing any numbers with the previous year and concluding that the economy is in good shape, is foolish to say the least. It's like saying that for the last 4 years my kid's been passing in 10% subjects, this year he passed in 20% (a stellar 100% increase) so please give him the Nobel prize. And everybody knows that even the worst governments tend to do a little something as elections near.
This is an article written by someone in dreams. Reality is bitter and the writer fails to be in a state of sanity to realize it.
dear ET...KESC is currently evaluating the bids for coal conversion of 420 MW...Nobody is sure whether KESC will able to start that project.. So kindly ask your writers to do some research...
where is the special report that you keep talking about?
Poor analysis. Cheap electricity is a fantasy; subsidies and budget deficit will continue to increase. Balance of payments crisis is brewing up; another IMF package is only way out
HAHA ET you surely have lost it. Good luck with the dead carcass that is the pak economy.
Economy already in a verge of collapse.How ET can justify that economy is ok?? Look bangladesh,thay are much better than us and its not far that they will be a biggest economy than pakistan!!
A much needed insight to our biggest problem i.e economy which can be piloted to a better level by the coming government,provided it doesn't reverse the measures taken by the PPP govt which undoubtedly are very few.
lets examine poverty numbers, inflation, erosion of capital from the country, the exchange rate, the loss of jobs in urban areas. these will tell the real story. if the ET Is going to be a front for stupid PPP propaganda, just say it so we i can start reading other nonsense.
.... However, it is said that the economy collapsed in 2008 not in the aftermath of Benazir assassination or anything else; it collapsed because the Finance Minister Ishaq Dar came on TV and said in his budget speech that the National exchequer was empty. The dollar shot to sky and most foreign investment was withdrawn from the country. What's keeping the upcoming government (PML-N by all accounts) from repeating the same mistake in their arrogance and bid to remove Zardari from presidency?
Consider the 3 highlighted figures in this articles. 1. I am assuming the 9% increase in Machinery Imports overlaps the Imports of the Power Sector machinery 2. KESC does not cover Punjab. The industrial hub of manufacturing is Punjab which will still be getting the more expensive power, hence more theft + subsidies. 3. The FDI of $688million. Thats the Coalition Support Fund amount.
The bright side is that SBP has reduced its frequency of reverse repos which indicates that SBP has changed its mind on its low interest rates policy. Maybe they are figuring out that rates are reduced when there is a glut of savings and the money velocity is decreasing.
are you high or just completely illiterate?
April fool's day comes a little late on ET!