September 03, 2007	Monday	Sha'aban 20, 1428

A small decline in inflation, some improvement in tax collection, more than 31 per cent jump in remittances, increase in direct foreign investment, narrowing down of trade and current account imbalances during a single month of July, has given renewed confidence to the government.

“Don't forget this positive trend in the national economy at the beginning of the current fiscal year has come after the most serious political crisis since March'', a senior government functionary, involved in economic management at the top decision-making and operational level, briefed a few media persons at the Qasr-i-Naz last week.

“Electioneering in coming weeks is not expected to bring a big impact on the economy'', he was confident and pretty sure that whatever the results of the elections by early 2008, the economic policies, by and large, will remain unchanged, and business will be as usual for next five years.

Bankers, multinational executives, farmers and economists appear to be sharing, to a large extent, the government's optimism on the national economy. They too are convinced that electioneering and the election results in the next few months will have little impact on the economy. Majyd Aziz, President of the Karachi Chamber of Commerce and Industry, is, however, not so optimistic as he fears the “political uncertainty to become more pronounced in coming weeks which is bound to have impact on the national economy''.

“We are getting disturbing signals from foreign and local investors in Pakistan,'' the KCCI chief said. But with this negative perception, he saw light at the end of the tunnel. Almost all relevant political parties have, by and large, the same economic programme and that judiciary is all set for a more proactive role in enforcing rule of law. These two factors speak a lot about future course of economy.

Qazi Sajid, Chief Executive of a German multinational and chairman of the Pakistan-German Business Council, does not see any big upset in economy in the coming months. “There was political turmoil during last four months,'' he recalled but declared that it had no impact on the business. “Growth in our business continued to show upward trend,'' he said and added he was now looking at the year 2007-08 with confidence and hope. “Consumption of chemicals in industries is a big indicator of growth.” Industrial demand for chemicals is on the rise in the country.

The senior government functionary insisted that the economic trends during the last quarter of the fiscal year ending June 30, 2007 and the positive indicators in a single month of July showed the resilience of the national economy. There was no damage and business was as usual during the last three months from July to March 2007 when lawyers marched on streets of all small and big cities and there were bomb blasts and the Lal Masjid episode.

“It is a good beginning in July,'' he said while pointing out inflation at 6.4 per cent which was slightly less than targeted 6.5 per cent for the entire fiscal 07-08. The non-food inflation was 4.9 per cent against 7.8 per cent in July 2006.

Food inflation, however, was 8.5 per cent in July as compared to 7.4 per cent during the corresponding period last year. But then food inflation had also started showing a downward trend from 9.7 per cent in June. The official spoke at length on the long and short-term strategy drawn up by a high-level committee to address the food inflation by maximising productivity and improvement in supply of wheat sugarcane, rice, vegetables, pulses and milk.

“Food inflation is a global phenomenon,'' the senior government official said quoting example of China where, according to him, food inflation was 15 per cent plus and was on the rise. Revenue collection in a single month was Rs49.7 billion. Direct taxes collection was up by 38 per cent to Rs13.9 billion while indirect taxes were Rs35.8 billion. Custom duties collection went up by 8.2 per cent and sales tax by 6.9 per cent.

The most significant and encouraging feature of the economic scene at the beginning of 07-08 is a sharp drop in the current account deficit to $892 million from over one billion dollars recorded in July 2006. It was largely attributable to decline in trade deficit to one billion this year from 1.07 billion in July last year, remittances amounted to $496 million and FDI was $188 million.

“Privatisation has come to a virtual halt'', a journalist reminded the official and he expressed doubts on launching of GDRs or bonds in international market in the foreseeable future. “There will not be enough flow of foreign exchange to bridge current account deficit. The current account deficit peaked at $7 billion plus in the last fiscal year and there seems to be hardly any respite in the current fiscal year.”

“Will Pakistan rupee come under pressure in coming months because there would not be inflows from privatisation, GDRs and international bonds?'' The government official did not offer a direct reply but said one of the problems that the State Bank of Pakistan faced in last quarter of 2006-07 was the unusual big inflow of foreign exchange. “This was the time when worst political crisis had hit Pakistan'', he reminded.

A noted economist Akbar Zaidi does not see any major upset on the economic front in the coming months, but apprehends “some inflation''.

“There may be 3,000 to 4,000 candidates in run for national and provincial assembly seats who will convert their assets into liquid --real estate, shares and bank deposits - and pump money into the market'' he said. Roughly about Rs30 to Rs40 billion may be pumped into the market in coming months. It is not only the injection of money but during an election campaign, the money changes hands very fast and hence velocity of circulation is too quick. This money expansion plus a fast velocity creates running inflation.

Mr Zaidi, however, sees some downward trend in real estate prices if many of such assets are to be converted into liquid. But for commodities and consumer items there is bound to be an increase in demand and hence in prices also.

Syed Qamaruzzaman Shah, Chairman of Sindh Agricultural Association, is all set to harvest rich sugarcane and cotton crops but is not so optimistic about rice. He hopes to get a price of Rs70 to Rs75 a maund for sugarcane. He is confident of getting good price for cotton and intends to invest a pretty good amount on election of his son in the next elections.

Bankers are not reporting unusual withdrawals and say that flow of money is normal. They do expect an increase in withdrawals sometimes in November and December when election campaign will pick up.

The fluctuations in stock exchange in the last few weeks are being looked in isolation from normal business. “Stock business grammar is altogether different” argued an industrialist who said that rules of a speculative business are bound to be different from normal hard business that runs on the principle of supply and demand. But Mr Zaidi does not rule stock exchange and real estate money making its way in the election campaign.

On the face of it there is no panic in the market because of the political developments in last three or four months or expected generation of political heat in coming weeks. There is definitely some concern on security issues but much of business confidence remains unimpaired.