Govt fails to control prices, reduce poverty in 2009

Sunday, December 27, 2009
By Mansoor Ahmad

LAHORE: The year 2009 failed to arrest ever increasing poverty or spur industrial growth as the interest rates remained very high, rupee continued to lose its value, inflation stayed in double digit, electricity and gas shortages persisted.

The depression in economy cannot be blamed entirely on the terrorist activities. Poor governance and incompetence has compounded the impact of terrorism on the economy. The government’s claims on improved macro-economic indicators during past 12 month are restricted to increase in foreign exchange reserves and inflation only.

The foreign exchange reserves improved because of over $5.5 billion received from IMF so far and increased workers remittances. Decline in crude oil and commodity rates also boosted reduced foreign exchange owing to imports. Inflation has declined by 50 per cent but is still in double digit which is extremely painful for the poor.

The inflation is on rise again despite very tight monetary stance of the central bank. The policy rate of the bank at 12.5 per cent is still very high and most of the industries cannot afford to borrow money from the commercial banks at policy rate plus a premium of 2-5 per cent.

The rupee that stayed stable for most part of the year has started losing its value against the US dollar in past six weeks. The year that is nearing its end was painful for all segments of the society. In the industrial sector the textile sector could not take off, the engineering sector remained under pressure, the steel melting industry is in doldrums, car production has not reached even 50 per cent of the peak attained in 2007, and the large scale manufacturing sector registered negative growth during past 12 months.

Tractor manufacturing sector was the only exception in this regard as it registered growth of over 20 per cent in calendar year 2009. In the services sector the boom seen in telecom during past three years slowed down appreciably in 2009. The construction activities remained slow, tourism was worst hit by the terror threats, occupancy in hotels remain much below five years average.

The IT sector remained hostage to the political turmoil in the country. The medium and small industries suffered more. There was 10-35 per cent decline in the production of television sets, refrigerators air conditioners and micro wave oven.

Small plastic manufacturers were wiped out of the market. The carpet industry shrunk by 35 per cent and skilled artisans of the industry were forced to seek jobs as unskilled labourers as demand for carpets declined. The carpet exports in 2009 suffered more because of the global recession. The cement sector that kept the construction industry on its toes for most of the last decade was slapped a fine of over Rs6 billion by the Competition Commission of Pakistan for its cartelized behavior.

As the local consumption declined cement exports however stayed robust. The sugar barons made up for the low sugar production from the 2008-09 crops by escalating the prices to historic high. The sugar crisis still persists in the country. Banking sector faced the problem of increasing non-performing loans but still managed to post healthy profits. The pretax profits of the banking sector during July September quarter was over Rs70 billion.

First long term textile policy was announced in 2009 but six months later as the year ends many of the incentives announced in the policy have not been implemented. Similarly the incentives announced for the engineering sector in the trade policy have not been implemented.

The sluggish economic performance had adverse impact on employment as labour intensive industries like construction and clothing continued to cut jobs while no new jobs were created due to absence of investment.

Agricultural performance was the only a silver lining in 2009 when Pakistan harvested bumper wheat, rice and cotton crops. Only sugarcane production could not achieve the target.