An Inflated Balloon

IT is somewhat too premature to declare victory on the back of a few selective indicators. Euphoria of this kind can undermine the credibility of the government, as details show that these indicators rest on shaky foundations.

A significant reduction in the current account deficit is a positive sign, but not at all an achievement to be satisfied with. The drop needs to be sustained, but the critical question is: at what cost?

Securing a saving by putting the engine to a screeching halt may not be an ideal course for an economy the size of Pakistan’s. It should not be a source of celebration, but introspection and correction.

Remittances sent by Pakistanis working abroad were almost two per cent down in the first four months of the current year. This should be a foremost concern for the government that has been claiming its significant political base in the overseas constituency. The inflows on account of diaspora bonds have not been encouraging either.

As confirmed by the State Bank of Pakistan, the private sector credit also fell by Rs4.1 billion during the first four months of the current fiscal year compared to an expansion of Rs223.1bn during the same period last year “on account of slowing economic activity”.

Some positive signs on the fiscal side were mostly because of one-off inflows from cellular companies and central bank profits; otherwise, the revenue machinery lagged behind its target by almost 170bn during July-October. Inflation is officially forecast to remain in double digits, at least during the current year.

A couple of good indicators should at best be viewed as a few early positive signs towards a long, arduous journey to economic revival

The flow of imports (in dollar terms) declined by more than 19pc in July-October, helping contract the trade deficit by almost 33.5pc. This is a good sign, indeed, as being celebrated by the prime minister and his economic team.

But the devil is in the detail.

While the sound reduction in imports of unnecessary and luxury items is generally a good sign, the contraction of some essential imports is rather alarming. Foremost among them is the 20pc fall in petroleum imports, showing a general slowdown in the country’s economic activity. Imports of petroleum products are down 23pc and crude over 30pc

However, machinery imports were slightly up 3.2pc in the four months. And a massive 50pc improvement is seen in mobile phone imports and 14pc in power generating machinery.

The inflow of textile machinery, office machinery and other apparatus were also down. In this group, significant reductions in imports were recorded in productive areas. For example, machinery imports for the construction and mining sector were down 46pc and over 25pc in agricultural machinery and implements.

This should be a cause of concern for all Pakistanis in general and the PTI government in particular because agriculture and construction have been on its top priority. The government has been talking about reviving economic growth primarily through these two sectors.

The transport sector also paints a bleak picture, as imports of all the 14 items in this group saw a drop of between 30pc and 82pc. A similar situation is also evident in the textile group, in whose imports are down 32pc in the four months. Top among them are the raw cotton and other textile item imports, which were down 40pc and 48pc, respectively. Synthetic fibre and synthetic and artificial silk yard imports were also down 23pc and 17pc, respectively.

False hopes could be as dangerous as an actual economic downturn. It is better to manage public expectations instead of creating artificial optimism. In a positive sign, imports of fertilisers and insecticides dropped by 15pc to 25pc, partly compensated by an increase of around 15pc in domestic production of fertilisers in the first three months of the current fiscal year.

Imports of the metal group fell by 21pc in the four months. Gold imports were down 7pc, iron and steel 38pc, aluminium, etc. 40pc and all other metal and articles by 10pc.

This reinforces the view that the construction and the related 40-something industries have gone into recession. Things will become clearer when we look at the large-scale manufacturing data of domestic industries in the coming paragraphs.

Exports in dollar terms increased by a humble 3.8pc year-on-year to $7.547bn in July-October, showing a growth of less than $277million. Exports in the cotton group increased by 4pc and that of raw cotton exports by almost 0.8pc, whereas cotton cloth and yarn exports dropped.Exports of bedwear, knitwear, towels and readymade garments improved, while those of sports goods declined. Exports of leather items posted a 12pc to 18pc growth in the four-month period, while surgical exports were down. Export volumes, mainly of rice, textile made-ups, leather products, and fish and meat, increased despite weakening external demand.

The situation has not been encouraging on the domestic front either. A belated release of the July-September quarterly data for large-scale manufacturing shows an almost 6pc decline in output. The production of petroleum products plunged by 14.5pc during the quarter, reinforcing the same story as in the case of crude oil and POL (petroleum, oil and lubricants) imports. This is one of the most important indicators of not only the lower economic activity at home but also the receding purchasing power of citizens.

The output of 10 out of 11 petroleum products showed a drastic reduction during the quarter. Jet fuel production fell by 3pc, the production of kerosene plunged by 35pc and those of petrol and high-speed diesel by 15pc each.

Furnace oil production declined by 18pc during the three months, whereas imports of its replacement fuel, i.e. LNG, dropped 11pc. This is another clear sign of reduced energy and fuel consumption, showing a slowdown in manufacturing and business activity.

Production of cigarettes fell by 35pc during the quarter, followed by 23pc in sacking and 15pc in jute goods.

The output of steel and automobile sector plunged across the board. For example, production of billets and ingots fell by 34pc while the output of cars, jeeps, trucks, businesses motorcycles, etc. tumbled between 22pc and 61pc.

To sum up, a couple of good indicators should at best be viewed as a few early positive signs towards a long, arduous journey to economic revival. False hopes could be as dangerous as an actual economic downturn. It is better to manage public expectations rather than ballooning artificial optimism.

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