- And its effect on industries
While the economy goes through an adjustment period where the currency has been brought closer to its real market value and interest rates have been hiked, the toll that it has and will continue to take on all sectors of business is becoming increasingly apparent. The auto sector has suffered a severe blow with car sales plummeting by 39.4 per cent to 31,107 units compared to 51,221 units in the same period last year. Truck sales, that are considered a measure of trade and business growth (new or growing businesses purchase them for transportation etc) also took a major hit with sales dropping from 1,738 to 874 on a year-on-year basis. Although a majority of automobiles are assembled here by the top three players, key components, like the engine and transmission, are still imported. The Pakistani rupee depreciating roughly 27 percent since August 2018 to date has therefore taken a toll on their sales as car prices have been raised to unaffordable levels. Increase in the Federal Excise Duties on cars has further added to this. On the consumer side, disposable incomes have shrunk as inflation has skyrocketed, forcing people to save, let alone splurge on new cars. This is part of the adjustment phase and like the car industry others are facing the same pressures on their top line as sales reduce and bottom line as costs increase.
As deep recession sets in, the slowdown worsens and Pakistan being a net importer of products; the trade deficit has been somewhat arrested, shrinking by 35 percent in the first quarter of FY 20 due to a reduction in imports. Businessmen with access to the various power centres will get whatever concessions they are able to successfully lobby for, while the smaller enterprises will have to bear the brunt as they neither have much retained earnings to weather the storm nor can they reduce their already razor-thin profit margins. This adjustment period will hence result in factory closures and joblessness in the short-to-medium term. The real danger however is some unexpected global economic shock like a major oil price hike for example; Pakistan’s economy is much too fragile to absorb any such event. It would almost certainly result in a catastrophic chain of events crippling the economy.