An exceptional surge in the import of industrial plant and machinery at $1945 million in the first seven months of the current financial year (July 2003 - January 2004).
Reflecting 25 percent increase over the imports of $1580 million for the full year of 2002-2003, may be interpreted as a positive trend in the pace of industrial investment in the country.
In the event of a further pick-up in the momentum of machinery imports during the remaining 5 months of the current fiscal, a new record in the imports of plant and machinery is likely to be established, which would be a turnaround in the process of industrialisation.
Imports of industrial machinery were already marked by a substantial rise last year, which was attributed to a massive programme of expansion, modernisation and replacement in the wide-ranging textile sector.
The investment spree was apparently prompted by a growing awareness that a much larger scope to increase Pakistan's share in the textile exports, will be available from 2005 onwards following the end of quota restrictions from the developed countries.
The government's elaborate plans to meet the challenge of open competition in the international textile market after 2005, as is well known, have already been spelt out in a study described as 'textile vision 2005'.
The programme envisages large scale investment in the industry for manufacturing higher value-added products for the export market.
In order to achieve this goal, liberal loan financing from banks and DFIs has been planned to support the above programme. A sound foreign exchange reserve position of over $12 billion is undoubtedly a highly significant factor in accelerating investment activity in the industrial sector through larger imports of machinery.
This is indeed a long-awaited emergence of private investment in industrial sector which suffered from a long spell of slowdown over the last few years.
It has been estimated that as a result of the rise in industrial investment, the ratio of capital investment to GDP significantly improved to 15.5 percent last year as compared to the earlier low of 13 percent.
However, it is felt that the ratio would have to be further improved to 18 percent of GDP which in turn could make it possible for the country to achieve a GDP growth rate 6 percent, well above the present target of 5.3 percent.
It may be pointed out here that stability in the exchange rate with Pak rupee showing a stronger tendency against the US dollar over the last one year has seemingly provided an impetus to imports in general and machinery imports in particular.
As a result, the unit price of imports in terms of Pak rupee is at a comparatively lower level than in the previous few years, thereby encouraging the pace of fixed capital formation in industry and other vital sectors of the economy.
The rate of custom duty on the imports of machinery other than that manufactured locally, is also pegged at a relatively low rate at around 10 percent in most cases.
The exchange rate stability, as managed and brought about through an appropriate monetary and exchange rate policy of the government and the State Bank of Pakistan, is undoubtedly an important adjunct of the overall economic reforms programme which has yielded positive results.
The sharp decline in interest rates to around 5 to 8 percent compared with around 22 percent about two years ago also indicates a significant achievement of the SBP's monetary policy which has in turn drastically brought down the cost of financing in the process of capital formation.
Another favourable impact of this policy is the fall in inflation rate to less than 4 percent which was still lower at less than 2 percent six months earlier, as compared to 11 percent about four years ago.
In turn the highly improved liquidity position of the banking system has paved the way for larger flows of both long-term and short-term financing.
In the ultimate analysis, a well sustained support to the rising pace of capital formation and increasing level of industrial production in recent months have been noted as distinctive features in economic activity thanks to low rate of interest and larger availability of credit.
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