Looking at brighter side of economy
KARACHI, Aug 13: Foreign remittances in the sum of $627 million poured into the country during July. That was the highest single month inflow in the history of the country. Given that the rupee had depreciated by 7 per cent during the month against the greenback, the confidence of the overseas workers in the country seems to be astounding. But is that misplaced?
Among the host of economists who habitually pronounce gloom and doom for the economy, it is difficult to find a few who look at the sunny side of the picture. Most are focused on the dwindling foreign exchange reserves; mounting trade and fiscal deficit; depreciation of the rupee and the soaring inflation.
The reason that the foreign remittances have soared, says an economist that looks at the sunny side of the countrys economy is that those sitting outside the country are looking at the country in the global context. Inflation is a worldwide phenomenon and so is the weakness of the currency and the stock market meltdown. South Korea has witnessed inflation at 26 per cent; Vietnam at 30 per cent and even India is experiencing double digit inflation.
Pakistans macro-economy numbers look dull due to the pass through of high oil prices. In the past four months, a staggering 71 per cent impact of the higher oil prices has been passed on to the consumers, says the economist. He is confident that from January 2009, the inflationary figure would dip down to single digit as the economy would have already borne the full brunt of the oil pass through and base of commodity and food prices would rise to international level.
Those given to pull long faces at largely deceptive macro-economic indicators also fail to look at the tax collection figures. They chuckled when the country projected a 25 per cent growth in tax revenues during the ongoing financial year, but all have since been silenced by the July tax collection numbers, which show a stunning growth of 30 per cent year-on-year. In spite of all the political turmoil there are evidences to prove foreigners confidence in the country and its future.
All five mobile companies operating in the country are of foreign origin; China Mobile has recently committed $800 million and Maybank invested another $950 million in acquisition of MCB Bank shares; Barclays the international banking giant has cited sound economic outlook for the country and overseas interest has been visibly expressed in the power sector, says Muzzammil Aslam, group economist at KASB/Merrill Lynch. Does that show that foreigners are shaking in their shoes at the mention of investment in Pakistan?
While Pakistani workers are sending in shiploads of dollars, the blame for the depreciation of the rupee falls squarely on the exporters, who, a money manager says have been stalling the receipts in greed of a higher exchange rate. But even the fall in currency value is not limited to the rupee; the all-too-mighty dollar has depreciated by 20 per cent against the euro and yen, while only last week the euro was beaten down by 7 per cent by the dollar.
And what of the stock market? The Karachi Stock Exchange has dropped 35 per cent from its index peak of 15,760 points in mid-April. Compared to that Chinese stocks have plunged by 50 per cent in spite of an 11 per cent economic growth and the Dalal Street in Mumbai is down 40 per cent. For all the hue and cry over the outflow of foreign investment from the equity markets, the fact remains that only $180 million were pulled out by the foreign investors in the difficult days of July-Aug, which is barely 4 per cent of the total foreign portfolio investment of no less than $4 billion in the Pakistans stock markets.
The country is in the adjustment phase, which would necessarily entail volatility in the value of the rupee and the capital markets. Muzzammil Aslam points out that Pakistans micro imbalances were driven by higher oil prices. But with the recent meltdown in crude and commodity prices, the dawn of 2009 should see trade deficit narrow as exports improve with currency adjustment and imports, which would be costlier would stand restrained, already evidenced in the 42 per cent drop in July auto sales numbers; reduction in import of oil, wheat and metals would cut down import bill the governments fiscal deficit would be reigned in as oil price pass through might be over. That would result in decreased borrowings from the central bank, while inflows of foreign exchange from privatisation, remittances, Eurobonds and higher tax collection numbers would have a soothing effect on the economy.
There are again talks of country picking up the begging bowl and knocking at the doors of IMF. Given a semblance of normalcy in home politics and continuation of liberalised macro-economic policies, those looking at the sunny side, hope that the country would step back on the road to a sustained growth number. If good days are so near as the dawn of next year, is it wise and respectable to ask IMF for a dole out? Economist Aslam says that a dollar fetched from foreign investment is much more productive as it employs more capital and increases economic activity than borrowings from international donor agencies, such as IMF, which touch their purse strings only after the country accepts harsh conditionalities.
Looking at brighter side of economy -DAWN - Business; August 14, 2008
