Economic challenges

Mansoor Ahmad
Wednesday, Jul 27, 2022

LAHORE: Political instability has been hurting the economy in many ways, while the havoc caused by recent rains to infrastructure and agriculture has further compounded miseries of the people.

Currently, no investor is willing to start a new venture in the country after the free fall of the dollar and high interest rates.

The tax compliant industries are in deep trouble. Car makers, for instance, having booked advance orders are in no position to execute them after depreciation of the rupee from Rs189 against the dollar to over Rs230/dollar.

The uncertainty about the rupee value has compounded their problems. Some pundits think the rupee will bounce back after the approval of tranche by the International Monetary Fund (IMF) board by mid-August, which is still 20 days away.

In view of the political instability in Pakistan the IMF board might postpone the approval for a while.

Even if the approval is granted, it is likely that the rupee would appreciate slowly depending on the other inflows from the World Bank, Asian Development Bank, and friendly countries.

Meanwhile, importers have no idea when to plan imports. If they import now, the machinery and components would be very costly. If they delay, their delivery plans would be disturbed.

The exporters that booked orders at low dollar rate are enjoying heavy profits when they cash their exports proceeds in the rupee. Still the greed for money is such that they rue their decision to redeem their export proceeds earlier as the rupee is now declining on a daily basis.

Importers on the other hand make hectic efforts to clear their consignments at the earliest. The congestion at ports is not helping their cause.

The goods they ordered when the dollar was valued Rs200 three months back are now being cleared at Rs30 higher dollar value. The higher dollar value has increased the costs of imported goods exponentially.

The duty and the sales tax on duty paid value have increased corresponding to the decline in the rupee value.

The delayed clearance of goods results in paying a daily penalty to the shipping lines for not releasing the containers. The minimum charges are $100 per day.

A ten-day delay in clearance forces the importers to pay a penalty of $1000, equivalent to Rs2,300,00 at current dollar rate.

The turmoil in Punjab has not helped their cause. The ruling elite is busy in firefighting in the province and most of the economic issues have been put on back burner.

Havoc caused to the infrastructure by the heavy rains has badly damaged the infrastructure. The provincial governments lack the capacity to repair the damages.

The resources needed for rehabilitation

of damaged roads and bridges are not available with the federal government that is already running an unmanageable fiscal deficit. Political polarity has crossed all limits.

The global recession has further dented our economy.

We managed to secure a 3 million wheat import deal at a competitive dollar rate but the decline in the rupee value has nullified the advantage.

The standing cotton crop is in danger at many places in Sindh and South Punjab because of standing water. Still, Pakistan is more a victim to polarisation in politics than other factors like natural disasters and global recession.