Recession rebound

Editorial April 19, 2010

After haemorrhaging for more than two years, it seems the economy is beginning to turn the corner.

One of the surest signs of this came last week with the release of Pakistan Automobile Manufacturers Association figures which showed that sales of domestically manufactured vehicles increased by 80 per cent in March, compared to the same month last year. For the first nine months of the fiscal year ending June 30, 2010, sales increased by 34 per cent over the same period last year.

A rise in the demand for both larger and smaller vehicles is an indicator of the fact that the economy may well be on its way to recovery — and this should be bode well for the government’s macroeconomic targets for 2011.

Whether the government is able to translate this into higher revenues is somewhat less certain but the imposition of the value-added-tax, coupled with the turnaround in large scale manufacturing should help the government reduce the fiscal deficit in the coming years.

Large-scale manufacturing had suffered last year and since it generally provides better-paying employment opportunities than agriculture, it should be encouraged by the government. Yet the government’s policies so far seem to focus on giving in to the short-term demands of various industrial lobbies rather than focussing on long-term competitiveness.

For example, the government will willingly ban or place high tariffs on foreign products rather than working towards solving the chronic energy crisis which would go a long way towards helping domestic manufacturers compete at the global level. Such misguided policies, which deliver short term benefits at the expense of long term viability, need to be curbed if exports are to be increased.


Meekal Ahmed | 12 years ago | Reply Just a couple of observations: Recession is defined as two successive quarters of negative growth. We don't have quarterly GDP data for Pakistan so we can't tell whether there was one. GDP growth has remained positive when measured year-on-year. What is certainly true is that the economy is operating well below trend or "potential", with what economists call a "negative output gap". Secondly, large-scale manufacturing is just the tip of the manufacturing ice-berg. It is the medium and small-scale manufacturing sector that generates 70% of output, 80% of employment and 75% of our exports. As incredible as it may sound, we don't know anything about activity in this sector. The government does a survey every now and then (may be ten or fifteen years apart) calculates the growth rate and plugs it into the national accounts. The same fixed growth rate year after year. I believe the present growth rate for this sector is 7.5% per annum. No one knows the true picture.
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