SARAS
South Asia Research and Analysis Studies

Light at the end of Pakistan’s economic tunnel
S M Hali
4/5/2019

The PTI government has been in power for nearly eight months and so far, the economic indicators are bleak. Pakistan’s consumer price inflation rose in March to its highest since November 2013, adding to economic headwinds besetting Prime Minister Imran Khan’s government.

Inflation rose to 9.41 per cent year-on-year, up from 8.21 per cent in February, Bureau of Statistics data showed earlier this week, lifted by sharp rises in food, fuel and transport costs that have squeezed household budgets. The previous week concluded with the central bank lifting its key policy rate by 50 basis points to 10.75 per cent, citing continuing inflationary pressures as well as high fiscal and current account deficits. Consumer price inflation has jumped sharply over the past year, climbing from under 4 per cent at the start of 2018.

Energy costs in particular have risen sharply, hit by a series of a devaluations of the rupee, and 1st April, the government announced a 6 rupee rise in petrol prices to 98.88 rupees a liter. Pakistan’s currency has lost over a quarter of its value over the past year. The country has been in talks with the International Monetary Fund on what would be its 13th bailout since the late 1980s.

The Bureau of Statistics said food and beverage prices, which account for more than a third of the index make-up, rose 8.22 per cent in March. Housing, water, electricity gas and other fuels, which make up just under a third, rose 11.55 per cent.

On a month-on-month basis, overall consumer prices increased by 1.42 per cent.

All the above quoted statistics would give any economist nightmares, not only Asad Umer, the custodian of Pakistan’s Finance Ministry. PTI had made tall promises to improve the quality of life of the people but it had warned that things will get from bad worse to worse becaMahathir Muhammaduse of the morass left behind by the previous government. The time for blaming the previous political dispensation in Islamabad has passed and the PTI government has to gear up to clean the Augean Stables.

Apparently work has begun and despite the inflationary trends, some indicators are promising. Pakistan Day 2019 set the mood. The Malaysian Prime Minister Mahathir Muhammad was the chief guest while armed forces contingents and complements from eight countries graced the occasion and proved that Pakistan is not isolated.

A delegation from the European Union recently visited Islamabad and finalized the visit of 20 French companies active in various sectors led by the MEDEF International, the most representative organization of the French private sector at an international level, to Pakistan from 8th to 11th April 2019. Let us hope that the light at the end of Pakistan’s economic tunnel is not a train.

Proton, Malaysia’s national car-maker is set to build an assembly plant near Karachi in Pakistan. The “Proton” joint venture first agreed last year, was the centerpiece of a series of agreements signed during the visit of the Malaysian Prime Minister. Different deals were signed of total around $800-900 million.

This deal will mean job creation and economic benefits. Proton is less expensive than Japanese or Korean cars and in view of Pakistan’s low per capita income, it will be more affordable. This would be the company’s first assembly plant set up in any South Asian country. Proton cars are sold in more than 25 countries including Britain, Singapore and Australia.

The Malaysian leader also said he would be working to bring Pakistan into Association of Southeast Asian Nations (ASEAN) as a dialogue partner – potentially opening up a lucrative market for Pakistan. ASEAN is a market of 651 million people with a GDP of $3 trillion and high human development index.

Glad tidings also emanate from the World Bank, which says that Pakistan could become a $2 trillion economy in the next 28 years if it remains steadfast in its reforms and manages to reduce its population growth rate to 1.2%. World Bank (WB) Country Director Patchamuthullangovan said that “With sustained reforms, Pakistan could be a $2 trillion economy when it will turn 100 in the next 28 years”.

Pakistan has the world’s 6th-Largest population (maximum population is young between 20-35 years of age). Pakistan’s undocumented economy, which is not taken into consideration when calculating per capita income or any other data. Pakistan is a developing country and there is no doubt in it. It is currently undergoing a process of economic liberalization, including privatization, aimed to attract foreign investment and decrease budget deficit. China-Pakistan Economic Corridor (CPEC) is an opportunity; this project is worth of $62 Billion. Saudi Arabia has also committed to invest $20 Billion in the same project.

Prime Minister Imran Khan’s government has however secured loans over $8 billion from Saudi Arabia, United Arab Emirates (UAE) and China besides credit oil facility on deferred payment of $3 billion each from Riyadh and the UAE.

A delegation from European Union recently visited Islamabad and finalized the visit of 20 French companies active in various sectors led by the MEDEF International, the most representative organization of the French private sector at an international level, to Pakistan from 8th to 11th April 2019. Let us hope that the light at the end of Pakistan’s economic tunnel is not a train.



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