Credit to the private sector and for machinery imports is fast growing. Large-scale manufacturing is doing well and foreign direct investment is also picking up. These trends point towards an uptick in economic activity.

“But the problem is that the corporate borrowing behaviour, the banks’ lending pattern to government priorities and the response of state institutions in fixing issues are not well-aligned. So, the economy isn’t shaping up the way it should be,” says a former SBP deputy governor.

Political uncertainty lingers on, issues in electricity and gas supply to industries persist and exports continue to suffer. The net inflows of foreign portfolio investment are also shrinking.

In less than ten months of this fiscal year (between July 1, 2016 and April 21, 2017), banks lent Rs457bn to the private sector, up 54pc from Rs297bn advanced during the same period of last year. The amount is even higher than the Rs446bn private sector borrowing in the entire FY16.


“Does our finance ministry have the ability to conduct a real analysis of which companies are making the most of these incentives to boost exports and which are not?”


During three quarters of FY17, imports of machinery surged 42pc to $8.82bn from $6.21bn in the same period of FY16. FDI also increased 12pc to $1.602bn, from $1.425bn. And, in eight months of the current fiscal year, LSM output also grew 4.1pc.

Banks are lending more to private sector on higher demand from both the corporate sector and consumers. Increased machinery imports are meeting the growing needs of manufacturing and service sector companies.

Bulkier chunks of FDI are coming into areas where better-performing companies are up for bigger market share, buttressing their production capacity, or in the areas where spadework for big CPEC-related projects is being done.

And, LSM growth has so far largely remained broad-based (11 out of 15 sub-sectors reported rising trend in output in July-Feb FY17).

Textiles and food and beverages are two major sectors that have a combined weight of 33pc in LSM. Export earnings of these two sectors also account for close to 80pc of the total.

So it makes sense when we see banks writing one third of all fresh loans in these two sectors combined. Lending to them shouldn’t be any smaller. But when we see export performance of these two sectors, one is disappointed. (Food exports are falling and textile exports, according to the latest stats, are struggling to remain at the last year’s level).

According to LSM data, textiles output grew 0.6pc and food and beverage production increased about 7pc in eight months of this fiscal year. The two sectors also got Rs67bn and Rs90bn loans in nine months of FY17. But textiles exports remained stagnant at $9.279bn in 9MFY17 ($9.362bn in 9MFY16) and food exports fell 11.6pc to $2.686bn against $3.038bn.

“We need more dissected data series, broken down to companies’ and products’ level to conduct an efficiency analysis of these two sectors. That’s where the role of fintech and analytics tools comes into play,” says a senior central banker. “Does our finance ministry, which doles out billions to textile millers in export-boosting incentives, have the ability to conduct a real analysis of which companies are making the most of these incentives to boost exports and which are not?”

Similarly, when the government talks about promoting food exports “does it consider actual requirements of value-added food exports (of meat, seafood, dairy products and a lot more)”? The answer is they don’t “and probably they can’t consider all this without embracing the culture of big data analytics.”

“So, there will remain big gaps between business output, bank borrowings, required improvements and innovations in processing, and the kind of support needed for export boosting and the kind of support coming in.”

Just consider this: A flour miller in Karachi admits his company is neglecting export potential of value-added products to the Middle East as another company is doing well. And, a textile miller says he is working hard to expand local sales of cotton cloth — because he cannot compete with the Chinese in export market. Don’t we find in these two examples a reflection of what we have been doing to our industries—making them dependent on subsidies and rebates instead of investing in their technological and innovation capacity building (to stand the test of changing times and tough competition)”?

Imports of machinery could be a proxy for examining the preparedness of industries for export competition. Regardless of the ongoing debate on whether, and to what extent, imports of machinery (related to CPEC projects) are not being reported, a few facts of even recorded imports need deeper analysis.

For example, textile machinery imports that have been on the rise for a few years still maintain an upward trend (up 21pc to $401m in 9MFY17). Why then is this not reflecting in export competitiveness of the textile sector. Or is it so, that some textile companies that are investing in machinery replacement or capacity expansion are actually producing more and better-quality products and even increasing exports while lot of others are lagging behind?

Similarly, imports of agricultural machinery that, too, have been growing for some years and in 9MFY17 increased 36pc to $84m need to be analysed extensively. Is the biggest chunk of this amount going to imports of traditional agricultural machinery? How much is being spent on imports of machinery that help in boosting farm productivity supporting food exports competitiveness?

Agricultural credit is another area that needs rebalancing in terms of efficiency-boosting, development loans versus running finance to agriculturists.

Agriculture, hunting and forestry got just Rs9bn net additional loans (Rpt Rs9bn) in nine months of FY17. (This should not be confused with gross agricultural loaning of hundreds of billions of rupees that is made on repayment basis for up to one year only).

“Can this suffice the needs of this sector, particularly in the backdrop of growing population and widening food trade deficit?

Published in Dawn, The Business and Finance Weekly, May 8th, 2017

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

‘Source of terror’
Updated 29 Mar, 2024

‘Source of terror’

It is clear that going after militant groups inside Afghanistan unilaterally presents its own set of difficulties.
Chipping in
29 Mar, 2024

Chipping in

FEDERAL infrastructure development schemes are located in the provinces. Most such projects — for instance,...
Toxic emitters
29 Mar, 2024

Toxic emitters

IT is concerning to note that dozens of industries have been violating environmental laws in and around Islamabad....
Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...