There are voices of hyperinflation, out of control fiscal deficit, power crisis and subdued growth. While the world is coming out of crisis, our home-grown problems are making it hard to pull out of the abyss.
Key players in industry are hopeless about the government being able to resolve the energy crisis and develop an equitable taxation system. The cost of having an uninterrupted power supply and the intangible cost of bleak security threat is making export-oriented sectors uncompetitive against emerging regional players like Bangladesh and Sri Lanka. While economies like Vietnam are also sneaking away our pie.
For the past two years or so, small and medium industrial players in the north are running plants below optimal capacity owing to gas shortages. This is not only fuelling inflation and exerting pressure on imports, but also creating acute unemployment issues.
Expansion in industries is far and few between, and those who have resources are venturing into the power supply business. The population and labour force, on the other hand, are growing faster than those of the peers. According to estimates, everyday 10,000 people reach 18 years of age in Pakistan.
The issue is how to feed the increasing young population and how to create jobs for them? These are the very issues with which we have entered 2011.
There are some ironies that need to be fixed; the corporate tax rate is amongst the highest in Pakistan while overall tax collection is the lowest, young population is increasing at a very fast pace while the industry is squeezing, and so are employment opportunities.
However, these problems are mostly confined to urban centres and export-oriented sectors, which enjoyed the boom in the past decade. The rural economy, with over 40 percent of the population directly or indirectly dependent upon agriculture, is enjoying a boom owing to higher commodity prices and being less reliant on energy and high formal bank borrowing cost.
A large part of that economy is not documented so the published numbers do not depict the true story. With less focus of the government on these sectors, there is an opportunity for the private sector to enhance its presence in the far-flung areas.
There is a need to enhance value added businesses in food and other agri areas. A better infrastructure of silos, cold storage, packaging and transportation of food products, including fruits and flowers, should be developed.
With BT cotton seeds, cotton production is likely to reach 18 million bales in a few years time, and there is a need to expand the value added textile sector. However, expensive power supply and high borrowing costs are the major impediments. But we need to enhance our informal engineering sector, like in the case of auto spare parts, we need to focus on spare parts in textile and other export-oriented industries.
There is a need to capitalise the boom in rural areas by increasing education and health facilities. A better quality human resource will not only increase socio-economic strata in the country but will also help in exporting it to have more remittances going forward. Mind you, the PRI initiative is routing remittances from the informal sector to the formal with no meaningful contribution in the real economy.
We need to rethink our education system. There is a need of more vocational training on various skills for both males and females in rural areas. There is an aging problem in the west with falling population in some areas; there are going to be more dependents with fewer people of working age. On the other hand, it's the other way round in South Asia. There is going to be a natural flow of human resource from east to west. We need to bank upon that by enhancing the skill set in our rural economy. By exporting them, we can increase remittances and prosperity in our under-developed areas.
MONEY AGGREGATES:
The week ending December 18 was unlike the many preceding weeks for the monetary aggregates. Government borrowing from the central bank declined by Rs 24 billion; nonetheless the year to date toll is in excess of Rs 300 billion. Fiscal deficit financing from the commercial banks has marginally increased by Rs 7 billion, having reached Rs 96 billion.
The highlight of the week was a Rs 34 billion increase in credit to the non-government sector which reached Rs 82 billion from Jul 1 - December 18. There is a significant increase in borrowing by public sector entities which could be because of plugging in the circular debt problem.
The currency in circulation virtually remained at the previous week's level with the year-to-date increase at a whopping Rs 282 billion. With an increase of Rs 42 billion in demand and time liabilities, overall money supply increased by 0.66 percent or Rs 38 billion for the week ending December 18. (Feedback at ali.khizar@br-mail.com)
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KEY MONETARY AGGREGATES AS ON DEC 18
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Rs (mn)
18-December 11-Dec Change
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Currency in Circulation 282,429 286,413 (3,984)
Total Demand & Time Deposits 114,635 72,567 42,068
Broad Money (M2) 398,381 360,339 38,042
NFA 69,029 71,200 (2,171)
NDA 329,351 289,140 40,211
Net Government Borrowing 356,917 374,868 (17,951)
Borrowing for budgetary support 400,256 416,886 (16,630)
from SBP 304,505 328,631 (24,126)
from scheduled banks 95,751 88,255 7,496
Commodity operation (44,706) (43,391) (1,315)
Credit to non-govt sector 89,265 55,226 34,039
to private sector 81,795 70,865 10,930
to PSEs 6,755 (16,359) 23,114
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Source: SBP
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