Adding momentum to recovery

Published March 1, 2021
Sentiments are rising steadily in business circles as the output and revenues surpassed pre-pandemic levels for a significant number of companies. — Reuters/File
Sentiments are rising steadily in business circles as the output and revenues surpassed pre-pandemic levels for a significant number of companies. — Reuters/File

Corporate Pakistan is gearing up for the post-pandemic world as the new cases decelerate and the vaccination drive continues to roll out at pace. Sentiments are rising steadily in business circles as the output and revenues surpassed pre-pandemic levels for a significant number of companies.

Some high-profile leaders reached for comments on the economy’s trajectory expressed cautious optimism. Economic activity has picked up, induced by a massive stimulus package of over Rs2 trillion. It was financed by external inflows to deal with the pandemic fallout and savings on account of debt payment deferment offered by creditors. Sustainability of the current trend, they argue, rests not exclusively on economic factors. Political stability, they think, is crucial for progress.

The political leadership, they urge, must bury the hatchet and come together for constructive consultation and cooperation to better manage the economy. They wished for a pragmatic International Monetary Fund (IMF) programme and a flexible implementation strategy. The first Covid-19 case was reported in Pakistan on Feb 26, 2020.

Atlas Honda CEO Saquib H Shirazi, who also serves as chairman of the Pakistan Business Council (PBC), believes apt interventions of the PTI’s economic team in the financial space created by the IMF’s $1.4bn rapid financing instrument (RFI) facility and G20 debt payment deferment worked wonders to shore up business confidence.

The business community fears political unrest may unravel the nascent economic recovery after Covid-19

He thought the “lives and livelihoods narrative” adopted by the government proved to have delivered. “Keeping the industry and essential services open allowed more astute exporters to get a handle on the situation to make inroads into the export markets. Confidence has improved for a wide segment of domestic investors. If the momentum were to continue for another year, foreign direct investment (FDI) should follow.”

Like his father, the late Yousuf Sheerazi, a known name in Pakistan’s business universe, he hammered into the theme of economic sovereignty for development. It did not stop him from supporting the IMF programme seen to ensure economic discipline and progress on the reform agenda. “It reassures global lenders and non-resident Pakistanis. I hope though for a more pragmatic approach.”

Mr Shirazi repeated what the PBC has been campaigning for since its inception in 2005: a consensus minimum economic programme supported by all major political parties.

He also mentioned a boon in the rural economy over the past year as the farming community switched from cotton to financially more rewarding food crops in the wake of higher demand and prices.

Sadaqat Ltd CEO Khurram Mukhtar, who is also patron-in-chief of the Pakistan Textile Exporters Association, said: “We have 60 per cent growth in our export sales in the current fiscal year. We are very optimistic and investing Rs8 billion in expanding capacity and making production vertically integrated.”

He attributed the turnaround to the focused efforts of the government. “I believe exports picked up because the government removed major impediments.” He mentioned the energy package, flexible market-based exchange rate, automation of sales tax and duty drawback refunds and a reduction in interest rates in this regard.

‘As long as Pakistan is competitive, we will continue to sustain and grow. The consistency of policies is the key’

“The temporary economic refinancing facility of the State Bank of Pakistan (SBP) has helped in fresh investments. Currently, 3,000 new air-jet looms, 1m spindles and 50,000 sewing machines are in the pipeline along with expansions in finishing mills,” he said. He appreciated the role the Federal Ministry of Commerce, Finance Division and the SBP have played in this regard.

“As long as Pakistan is competitive, we will continue to sustain and grow. The consistency of policies is the key. Textile Policy 2020-25, still in the making, is important to clear doubts.”

A textile baron was not as positive as he saw a crisis brewing that may hit the shores in two months. “The cotton shortage locally and vertically climbing prices of polyester and cotton in the world market can end the honeymoon in textiles sooner than many expect,” he warned.

He was apprehensive about the revival of the IMF programme as he believed the lender didn’t understand the ground realities. He expressed doubts about the proficiency of the team that sat across the table with the IMF delegation.

“We have no idea how they have negotiated. We cannot have upfront loading like last time as hardship was too much.” He expects imports to rise as the economic activity picks up. “Exports will need sustained encouragement to grow.” He lamented the delay in the announcement of the textile policy.

He said big chunks of loans under the temporary economic refinance facility of the SBP have gone to cement and steel sectors.

An industrialist from Faisalabad, who gained the celebrity status for locating and capturing a share in a niche global market with his brand, shared his views on the condition of anonymity. He responded in writing to Dawn’s query on the sustainability of the current spurt of activity.

“On the whole, the SBP stimulus during Covid-19 was quite helpful. The government facilitated through faster refunds of sales tax and DLTL claims and by fixing regionally competitive energy rates for exports. This helped in increasing exports of value-added goods by 15-20pc. However, the strengthening of the rupee and a shortage of cotton have put pressure on costs in dollar terms.”

He expressed some reservations about the future. “With the IMF programme back, if the untaxed sector is brought under the tax net, it would work better in the long run. However, if energy rates and other facilities to the export-oriented manufacturing sector are withdrawn, it will cause problems.”

A federal minister privately shared his fears. “I dread the 2023 national elections that can bring the PML-N back in power and puncture the current momentum.”

Published in Dawn, The Business and Finance Weekly, , March 1st, 2021

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