Economy struggles as govt takes one step forward, two steps back

LAHORE: One step forward, and two steps back continue to keep economic uncertainty constant. Devaluation had some positive impact on exports, but it increased the import cost and foreign debt in rupee terms; higher mark-up increased the domestic debt servicing cost.

This government has now started taking some commendable steps in ease of doing business.

The reduction of tax filing from 46 to 16 is on step. Increase in gas and power rates has however enhanced the cost of doing business for all domestic industries and 35 percent of the exporters that are outside the five preferred sectors.

Economy was moving up on the strength of high growth in the cement and auto sectors, while the textiles were in trouble. These fast growing sectors lost the growth momentum because of filer and non-filer controversy.

The auto sector might partially recover as non-filers have been allowed to buy up to 1300cc cars.

The construction sector would remain under pressure as non-filers are banned from buying property above Rs5 million.

The five exporting sectors got double relief, as the tariff of gas and power has been reduced to the regional level.

Secondly, duties on most of their imported inputs have been reduced or abolished and the regulatory duties have been withdrawn.

While relief in gas tariff would benefit industries located in Punjab, the relief on power would be for all five exporting sectors located anywhere in the country.

In electricity alone, an average mill of 25,000 spindles would get a relief of Rs2 million per month or Rs24 million per year.

This relief, along with the benefit of huge devaluation would surge the exports for a while even on obsolete technology.

Textile players admit that even after these facilitations it would not be possible to revive over 100 mills that were closed down in last two years.

The decision of the central bank to increase the interest rates by 25bps was unexpected, but the decision was probably taken on regular printing of notes by the SBP on governments’ demand that would fuel inflation.

This government has retired commercial bank’s debt by borrowing from the central bank. The decline in petroleum rates and subdued domestic demand has kept the inflation in check to some extent. Still in the first six months of this fiscal, it averaged six percent against only 3.8 percent in the corresponding period of last fiscal.

This government seems to be in a hurry to open Pakistan for tourists. It has relaxed visa for 50 countries. There is no doubt that Pakistan has the potential to become a tourist attraction.

However, there is a need to do some homework in this regard. We currently lack decent accommodation facilities at most of the attractive tourist places.

The law and order has greatly improved, but is still far from ideal. Tourism should be promoted with extreme caution, as any untoward episode at the start would take years to repair and restart.

We should work immediately to resolve these two issues. Pakistan is a great place for religious tourism. We have some control at religious places.

We have some highly revered Hindu temples.

The Buddhist have so much to see about Buddha in Taxila and other places, and Sikhs have so many religious places that they would love to visit.

We should in fact start with religious tourism and activate our embassies in Far East for Buddhists and Hindus and in Canada, United States and England for Sikhs. For the time being, we cannot expect many pilgrims from India.

Finally, the government would have to find out a way to restart development work. We are currently consuming all the debt we get from abroad without doing any development work.

Prudent development projects have the capability to payback the debt and create surplus for further development. Foreign loans carrying high interest would burden the economy for decades if used only for consumption.