The year 2023 was tough for the businesses, industries and retail outlets in Pakistan. Economic activities faced challenges on account of political uncertainty alongside massive devaluation of the local currency, which put an extra burden on the national economy and the people who faced the impact in the form of rising power and gas tariffs, petroleum prices and headline inflation.

Kashif Anwar,the Lahore Chamber of Commerce and Industry president,says 2023 was one of the toughest years for the country on every count. He says the industries and businesses faced stiff challenges due to multiple factors that still continue.

First, there was a massive devaluation of the rupee against the US dollar - more than 25 percent–during the year. For the first time, the US dollar crossed the Rs300 markin interbank trade. In the non-regulated market, at its peak it was exchanged at Rs350 to a dollar. This played havoc with the industries as a large part of the industrial sector is dependent on imported raw materials.

Since most industries are reliant on imports of raw materials and intermediate goods, the cost of doing business increased drastically. Some administrative steps were taken to stop the currency exchange manipulation and smuggling of dollars to Afghanistan.These brought down the inter-bank exchange rate to Rs280. However, it is still very high and many industries have become uncompetitive in the international markets as they are only able to meet the local demand on account of import curbs.

Second, growth in the industrial sector was also constrained as it was difficult to open LCs in 2023, resulting in a shortage of raw materials. The growth rate of the industrial sector dropped to negative 2.94 percent in 2022-23 as compared to 6.83 percent in 2021-22. Due to the LCs opening issues, thousands of shipping containers remained stuck at ports during 2023, resulting in huge demurrage and detention charges for the businesses. This further raised the cost of doing business.

Third, the policy rate rose to 22 percent in June 2023. This made access to credit very expensive for the private sector. Currently, bank financing is available at 22 percent plus 4 percent KIBOR rate which is not even feasible for most large scale industries.How can small and medium enterprises survive in this situation? These factors resulted in an increase in unemployment and closing of industries.In almost all industrial cities, including the federal capital, this led to a worsening of law and order situation.

There was a large hike in electricity and gas tariffs.This too raised the cost of doing business. The gas price for the industry rose to Rs2,022 per mmbtu in November 2023 and the electricity tariff to Rs 33 per kwh. Meanwhile, the ‘circular’ debt in the energy sector (power and gas) has been growing.

Exports dropped by around $4 billion in 2022-23 to around $27.7 billion. This caused a balance of payments crisis and forced Pakistan to enter into IMF agreements on strict conditions.The government kept milking the existing taxpayers with the imposition of additional taxes of more than Rs2,000 billion in the federal budget 2023-24 with the highest ever tax collection target of Rs9,415 billion.

The refunds issue remained unresolved in 2023. So did liquidity issues for the businesses.Tariq Mahboob, chairman of the Chain Stores Association of Pakistan,says that inflation has played havoc with the retail sector by curtailing the purchasing power of every segment of the society.

He says the lower-income groups have stopped buying many items to continue meeting their daily needs.

Import restrictions have hit the businesses hard.Many import-based producers have been unable to cope with the absence of the raw materials for their products. This has brought down the retail sector growth from around 12 percent to 4.5-6 percent. Inflation,too, has contributed to this decline.

Economic measures like raising of the mark-up to the highest ever level,the worst-ever devaluation of the local currency against US dollar and the administrative steps taken by the government to control smog have affected the retail sector sales. The worst impact of such decisions was witnessed in the Black Friday and November sales.

The drop in the sales also affected the brands and incomes of retail sales staff that are often target- and commission-based. Just as sales declined drastically,the cost of living went up.

Inflation and devaluation brought down the net worth of many local brands.Some of them are no longer competitive in the global markets.

The writer is staff reporter