October 01, 2023 (MLN): By now it is abundantly clear that Pakistan's short-term economic growth bouts of 5-6% can not be sustained without addressing structural inefficiencies. One indicator that pains the most is the despicable export of goods or services as a % of GDP. At a woefully low 8-9%, this should wake us up.
The entire industry needs to be woken up with a bang and put to work. Unfortunately, for capitalists, the easy money in the real estate sector coupled with subsidy-induced capital expenditure has made it complacent.
Our obsession with textile exports is waning as high energy costs and perpetual liquidity issues complicate growth.
In addition, periods of overvalued currency in 2015-2018 created an asset bubble where investors saw rupee-based assets (land and stocks) rise at an astronomical rate. Why would many players focus on competing globally for low margins and deal with hectic labour issues?
Though there are clear merits of subsidized financing without value addition this is steroid-based unsustainable growth.
A few notable giants such as Interloop Limited one exceptional case that reinvests in modern technology and focuses on high-margin value addition. The free lunches are now over.
Yes, the currency has depreciated enough to offer competitiveness but the Export Finance Scheme and Long Term Finance Facility have both been linked to a Policy Rate minus 3% to 22%.
That would surely deter competitiveness in the absence of regionally competitive energy. Perhaps the industry is throwing the towel and needs to focus on areas other than textiles.
Pakistan hardly earned a paltry $2B in exports of goods in July. This CAN NOT sustain an economy of 250m people. Ultimately, we would see brain drain and the resultant increase in remittances keeping the economy afloat.
It's terrible to see such a colossal failure. We needed sustained 4-5% GDP growth, currency depreciation of 4-6% per year and managed interest rates between 11-14% period.
July's trade deficit of $1.6bn is akin to the food appetite of the patient without physical activity and low metabolism. Imports are suppressed to the point of strangulation.
Even if restrictions seem to be gradually removed, a 22% interest rate would ensure no to low growth.
It's time for new policymakers to solely focus on exporting services, if not goods. Our country deserves better – please create an exporter-friendly environment.
The author is an independent economic analyst and writes on Twitter and Linkedin.
Posted on: 2023-10-01T22:22:12+05:00
