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Surge in manufacturing
MOHIUDDIN AAZIM
- File Photo
Updated 2013-12-02 13:05:57
On the face of it, external sector and fiscal worries seem to be threatening economic growth. But there are some positives that fuel optimism.
Large-scale manufacturing grew about 13 per cent year-on-year in September, and by more than eight per cent during July-September.
The private sector’s bank borrowing in the four-and-a-half months of this fiscal year has doubled to Rs104 billion, from Rs52 billion in the year-ago period.
Large-scale manufacturing (LSM) is expanding on the back of improved electricity supplies. On the agricultural front, the cotton output is rising in double-digits, and the sugarcane outlook is bright as well.
The list of the sectors whose output increased in Q1FY14 is large and diversified. These include textile (2.5 per cent), food, beverages and tobacco (18.8 per cent), coke and petroleum products (12.7 per cent), paper and board (19.7 per cent), fertiliser (44.6 per cent), pharmaceuticals (1.5 per cent), electronics (16.9 per cent), iron and steel (9.5 per cent), leather (34.7 per cent) and chemicals (2.1 per cent).
What is even more encouraging is that the combined weight of these industries in the large-scale manufacturing index is about 60 per cent.
A pertinent question here is whether these industries can continue producing more amid a looming gas supply crisis this winter, as well as rising interest rates due to monetary tightening and upward adjustments in the electricity tariff etc.? Those who answer in the affirmative point to some supporting factors.
These include improved supply of electricity to industries, rising domestic and foreign demand, and enhanced production efficiency and economies of scales obtained by key sectors like textile, food processing and leather.
Much, however, depends on how exactly the planned cuts in gas supplies to industries in Punjab are implemented. From an outright suspension for two months to four-days-a-week supply, there are a couple of proposals under study.
The Pakistan Textile Exporters Association has come up with another innovative proposal: alternate hourly supplies to both households and industries, instead of depriving either for a whole day.
On balance, LSM’s robustness looks sustainable. High performance of key crops and LSM is good for growth of small and medium-sized enterprises (SMEs), as many of them thrive on increased activity in these two sub-sectors of the economy.
But unlike large industries, which are not solely dependent on the national grid for electricity supply and either have their own captive power plants or can purchase electricity from the ones that have, SMEs’ performance is badly affected if their power supply is cut. In winter, their electricity woes remain somewhat subdued, with a narrowing of the gap between total demand and supply.
But the situation would be different in summer. Moreover, as the drive for regularisation of gas connections gets into full gear, it has the potential to hit a large number of industry- and agriculture-based SMEs.
However, trading-based SMEs are expected to continue with their better performance on the back of expanding external trade and an expansion in local wholesale activities.
Meanwhile, export earnings are rising, and the imports bill is declining. So, the trade deficit is somewhat under check. Remittances are up, and so is foreign direct investment (FDI).
But external sector worries persist, with the current account deficit rising amid heavy foreign debt servicing, along with shrinking forex reserves and a depreciating rupee. Rising outward transfers of profits and dividends of multinational companies operating in the country continue to weaken the external account.
Inflationary pressures have resurfaced, with the State Bank continuing a tight monetary policy. The fiscal deficit remains high, though lower than last year, and the circular debt is growing again.
An inflow of about $550 million is expected next month as the second tranche of the $6.7 billion IMF loan, and it may provide some support to the faltering rupee. The rupee has lost about nine per cent of its value against the dollar in five months of this fiscal year, and the forex reserves have fallen by 20 per cent, or more than $2.2 billion.
Officials of the ministry of finance say efforts are being made to attract forex inflows via FDI as part of a broader strategy to keep the balance of payments in shape. They say that the appointment of foreign consultants has set the stage for timely auctioning of 3G and 4G licenses.
If completed as per schedule in February next year, the expected inflow of $1.5 billion would ease off pressure on the external account emanating from the huge foreign debt servicing. Pakistan has to pay about $1.5 billion to the IMF in debt servicing from now till next September.
Bankers say given the precarious current account situation, the rupee reacts quickly to bulky forex outflows.
It has lost about 0.6 per cent of its value against the dollar in just two days to November 26, when Pakistan repaid $396 million as the 24th installment of an old IMF loan.
MOHIUDDIN AAZIM
- File Photo
Updated 2013-12-02 13:05:57
On the face of it, external sector and fiscal worries seem to be threatening economic growth. But there are some positives that fuel optimism.
Large-scale manufacturing grew about 13 per cent year-on-year in September, and by more than eight per cent during July-September.
The private sector’s bank borrowing in the four-and-a-half months of this fiscal year has doubled to Rs104 billion, from Rs52 billion in the year-ago period.
Large-scale manufacturing (LSM) is expanding on the back of improved electricity supplies. On the agricultural front, the cotton output is rising in double-digits, and the sugarcane outlook is bright as well.
The list of the sectors whose output increased in Q1FY14 is large and diversified. These include textile (2.5 per cent), food, beverages and tobacco (18.8 per cent), coke and petroleum products (12.7 per cent), paper and board (19.7 per cent), fertiliser (44.6 per cent), pharmaceuticals (1.5 per cent), electronics (16.9 per cent), iron and steel (9.5 per cent), leather (34.7 per cent) and chemicals (2.1 per cent).
What is even more encouraging is that the combined weight of these industries in the large-scale manufacturing index is about 60 per cent.
A pertinent question here is whether these industries can continue producing more amid a looming gas supply crisis this winter, as well as rising interest rates due to monetary tightening and upward adjustments in the electricity tariff etc.? Those who answer in the affirmative point to some supporting factors.
These include improved supply of electricity to industries, rising domestic and foreign demand, and enhanced production efficiency and economies of scales obtained by key sectors like textile, food processing and leather.
Much, however, depends on how exactly the planned cuts in gas supplies to industries in Punjab are implemented. From an outright suspension for two months to four-days-a-week supply, there are a couple of proposals under study.
The Pakistan Textile Exporters Association has come up with another innovative proposal: alternate hourly supplies to both households and industries, instead of depriving either for a whole day.
On balance, LSM’s robustness looks sustainable. High performance of key crops and LSM is good for growth of small and medium-sized enterprises (SMEs), as many of them thrive on increased activity in these two sub-sectors of the economy.
But unlike large industries, which are not solely dependent on the national grid for electricity supply and either have their own captive power plants or can purchase electricity from the ones that have, SMEs’ performance is badly affected if their power supply is cut. In winter, their electricity woes remain somewhat subdued, with a narrowing of the gap between total demand and supply.
But the situation would be different in summer. Moreover, as the drive for regularisation of gas connections gets into full gear, it has the potential to hit a large number of industry- and agriculture-based SMEs.
However, trading-based SMEs are expected to continue with their better performance on the back of expanding external trade and an expansion in local wholesale activities.
Meanwhile, export earnings are rising, and the imports bill is declining. So, the trade deficit is somewhat under check. Remittances are up, and so is foreign direct investment (FDI).
But external sector worries persist, with the current account deficit rising amid heavy foreign debt servicing, along with shrinking forex reserves and a depreciating rupee. Rising outward transfers of profits and dividends of multinational companies operating in the country continue to weaken the external account.
Inflationary pressures have resurfaced, with the State Bank continuing a tight monetary policy. The fiscal deficit remains high, though lower than last year, and the circular debt is growing again.
An inflow of about $550 million is expected next month as the second tranche of the $6.7 billion IMF loan, and it may provide some support to the faltering rupee. The rupee has lost about nine per cent of its value against the dollar in five months of this fiscal year, and the forex reserves have fallen by 20 per cent, or more than $2.2 billion.
Officials of the ministry of finance say efforts are being made to attract forex inflows via FDI as part of a broader strategy to keep the balance of payments in shape. They say that the appointment of foreign consultants has set the stage for timely auctioning of 3G and 4G licenses.
If completed as per schedule in February next year, the expected inflow of $1.5 billion would ease off pressure on the external account emanating from the huge foreign debt servicing. Pakistan has to pay about $1.5 billion to the IMF in debt servicing from now till next September.
Bankers say given the precarious current account situation, the rupee reacts quickly to bulky forex outflows.
It has lost about 0.6 per cent of its value against the dollar in just two days to November 26, when Pakistan repaid $396 million as the 24th installment of an old IMF loan.
