Highlighting the salient features of quarterly economic review, Advisor to the Prime Minister on Finance Dr.Abdual Hafeez Sheikh cited improvements in all macroeconomic indicators. He said that deficit in current account has decreased by 35 percent, fiscal deficit has gone down by 36 percent, tax revenue is up by 16 percent and exchange rate stability has been achieved. He expressed the optimism that business environment will improve as a result of difficult decisions to stabalise the economy which will attract foreign investment.
There is no denying the fact that harsh stabilizations measures were needed to address fiscal imbalances and put the economy on the path of revival and real production led economic growth. The growth of 2.75 percent in exports is encouraging if it gets further momentum and is sustained in the long run. The composition of exports comprises few textile products and a number of primary commodities. An aggressive economic diplomacy will be required to diversify exports by exploring new markets with better terms of trade and increase in the quantum of export products to the markets of existing trading partners.
There is need of increasing exports to the countries with which Pakistan has signed free trade and preferential trade agreements which have resulted in big trade deficits. A significant increase in exports will help local currency to regain some more value against the US dollar and other global currencies that it lost during the past one year. Currency depreciation has made expensive the import of raw material and intermediate goods which are consumed in the manufacturing of export products thus lowering their comparative advantage against the identical product of other countries in foreign markets. The stabilization measures have temporarily impacted the productive activities in manufacturing sector. In the automobile industry the sale of cars has dropped by 40 percent to 31,107 units in the first quarter of the current fiscal year as compared with the proceeds of 51, 221 units in the same period last year. Likewise, the sale of truck has declined by 50 per cents, of buses by 26 percent, of tractors by 32 percent, jeeps by 58 percent and pickups by 48 percent.
The auto sector has been assembling the Japanese brands of cars and other vehicles with a deletion ratio of 30 to 35 percent. Engines and big components are imported which have become expensive because currency depreciation. The imposition of Federal Excise Duty of 2.5 to 7.5 percent on the import of engines and auto components for locally assembled cars and heavy duty vehicle has abnormally has further pushed up the price of cars heavy duty vehicles and caused contraction in their demand. Renault Motors of France and Hindai Motors of South Korea had shown willingness to set up manufacturing plants in Pakistan which may shy away if demand for cars and heavy vehicles remain depressed.
Like textiles the automobile industry is also providing jobs to large number of workers It would be worthwhile if the ministry of finance come forward resolving the issues confronting not only the automobile industry but also that of textile.
