With a two-year high rate of inflation and nominal wage level raises, slower than average price level, suggest that the purchasing power of the average Pakistani has declined in the last two years, concludes a recent ABN Amro Bank report.
The report says that the country has been experiencing an unprecedented boom in consumption spending, touching 80 percent of GDP as a result of almost 50 percent increase since 2002-03. "That is one of the biggest surge in the country's history with a skewed base."
In real terms, consumption spending has risen nearly 25 percent in the past two years, with a 17 percent increase in 2004-05 alone.
Analysing the consumption expenditure as the main driver and the factors contributing it, the report also points out how perceived benefits have not been realised.
The consumers of cars, non-business international travels, skewed stock market investors, credit card users, the high pace of GDP growth has not been as job-creating as officially believed. It has just bypassed the masses, benefiting just a few hundred thousand, and not more.
As the latest Labour Force Survey (2003/04) points out, of the 2.9 million new jobs created, 1.9 million were "unpaid family helpers", which leaves only 900,000 new jobs created in the past two year. Hike in consumption is not principally due to new jobs.
The nature of consumption indicates its concentration in the already affluent income segments.
For example, between 2002 and mid-March 2005 (the peak of the recent asset market boom), the market capitalisation of listed equities grew ninefold and property values rose an estimated three- to four-fold across major cities in Pakistan, which by-passed the majority.
To prove its thesis, the report indicates some key contributors. Not over one million people invest in stock markets: the active ones are approximately 500,000-800,000 in the country's stock markets.
This will never be over 1 percent of the total population. As government claims, its divestment drive (IPOs in stock exchanges) produced Rs 40 billion capital gain for 716,000 people.
Spending on credit cards has nearly doubled since 2002-03 to a record Rs 13.2 billion as of December 2004. However, once again, the base is relatively low, with an estimated 750,000 cards outstanding as of end-September 2004.
Total 250,000 cars were produced in the country--an important driver of industrial growth--since FY03, which are annually around 83,000 cars bought through consumer loans. It shows the limitations on the affordability of significant portion of the population.
The breakdown of imports by capital goods and consumer goods indicates a rising share of consumer goods both in finished and raw material form.
Earlier, road motor vehicles were listed as machinery in imports creating a deception. The unprecedented surge in China's exports over the past few years established a strong deflationary pressure generated on prices of manufactured goods globally boosting consumption.
Another striking consumption figure is international travel that is on outbound personal (as opposed to business) travel which crossed $1.1 billion, an almost three-fold increase over 2002-03, which is highest ever absolute level.
A claim which the government makes is about sale of motorbikes. After cheaper Chinese motorbikes bringing down prices, the production and sale of motorcycles has more than doubled since 2002-03, from a little over 175,000 to 400,000 in 2004-05.
The sale of motorcycles is a rough proxy for the financial health of the rural sector where supposedly the bulk of the sales take place. The only data the government has been reiterating.
The government claims that an estimated Rs 120 billion net was pumped into the rural economy in the outgoing year on account of record cotton and wheat production of 2004/05.
Almost $15 billion has been poured into Pakistan in the form of remittances over the last four years. Pakistan used to receive $2.5 to $3 billion from remittances prior to September 11, 2001, which jumped to $4 billion, showing $1-1.5 billion additional income. New money injected then is $4-5 billion.
However, the number of remitters has not improved, just improving average remittance per remitter, which shows least impact on poverty reduction.
The bulk of the extra remittances has been channelled into property, equities and current consumption.
After the huge sell-off since mid-March 2005, the stock market has generated cumulative capital gains of some Rs 1.6 trillion over the last less than four years, equal to 30 percent of average GDP between 2001-02 and 2004-05. A rough estimate for capital gains over this period in real estate amounts to Rs 650 billion, making cumulative gains of Rs 2.25 trillion--the equivalent of 41 percent of average GDP for the last four years.
Any owner after increase in the value of his asset would spend more in future, feeling his affluence.
By the end of 2004, the outstanding stock of consumer loans made by banks amounted to over Rs 200 billion. This included personal loans Rs 61 billion, automobile purchases Rs 49 billion, mortgages Rs 18 billion, and credit cards Rs 13 billion.
Other could be durable goods, airline tickets, mobile phones and equities, among other items.
The report maintains that with real GDP growth having picked up, recent increase in the pace of job creation, private spending should remain well-supported. In addition, the budgeted sharp increase in government spending together with the announced tax rebates and salary increases should be important drivers of private consumption spending.