Planners asked to revisit export strategy

LAHORE: The planners should restore the competitiveness of exports through a special package as current rupee devaluation is insufficient and further devaluation would be extremely harmful for the economy, economists said on Thursday.
They pointed out that competitiveness of exports could be restored by reducing the cost of doing business. The factors affecting competitiveness include high power tariff, struck up sales tax and refunds of the exporters and the weak administrative machinery that covers its inefficiencies by taxing exports at various stages, as it is unable to tax the non-documented suppliers.
“The exports around the world are zero-rated and exporters cannot pass on these taxes to the foreign buyers,” they added.
Senior economist Naveed Anwar Khan said weakening the currency to improve competitiveness of exports not only ramps up import cost, but also increases debt and debt servicing cost, while increasing inflationary pressure.
The devaluation is a curse for weak economies, including Pakistan as it triggers all negative factors i.e. increase in interest rates and inflationary pressures, which came under control in recent months after years of efforts.
“Boosting exports is also crucial but exports have never increased in Pakistan by weakening the currency,” Khan said, adding that the government should revisit its export strategy.
The impact of devaluation that could even sustain the current export levels would be devastating for the common man and economy of the country. Furthermore, the decline of one rupee in rupee value against the dollar adds Rs62 billion to foreign debt in rupee terms.
According to all economic experts, Pakistan would have to adjust the rupee value to at least Rs110 in order to restore the competitiveness of the exports. But, “Are we prepared to add Rs620 billion in our foreign debt and subsequent increase in debt servicing cost?” he asked.
Khan said the competitiveness of the exports could be restored by allocating around Rs100-150 billion for export refunds on inputs that are provided by most regional economies. “This could be done by refunding all the taxes collected on fuels consumed in power production to the exporters.”
A realistic value could be assessed by the experts, he said, adding that the same is being done in India. The tax on diesel consumed for self generation of power by exporters in different processes is refunded. “Some provincial and local government taxes on exporting industries are not refundable, though,” he added.
These taxes should be abolished and federal government should compensate the provinces and local governments from special funds as was done when octroi was abolished during previous Nawaz era.
Lastly, all the struck up refunds and refunds created thereafter should be refunded with a specific time frame not exceeding 15 days in case of fresh refunds.
“On failure to do so, the FBR should pay interest amount at KIBOR plus two percent,” which should be paid on a monthly basis until the total amount is refunded, he said.
Furthermore, the refund officers should be made accountable for delay in refunds. If these steps are taken and implemented there would be no need for rupee devaluation. In fact, the rupee would start strengthening as the exports increase.
Economist Faisal Qamar said Pakistan as a country and its private sector as a whole are net importers.
In fact, the imports in Pakistan are almost double than its exports.
“A stronger rupee will keep in check the cost of all imports including crude oil, edible oil, industrial raw material and machinery,” the economist said, “On the other hand, a weaker rupee would force the government to increase the petroleum product rates at a time when crude oil rates are at its lowest in a decade.”
“We all know that under invoicing in Pakistan is rampant that is badly impacting domestic industries survival,” he said, “In case of weaker rupee would further increase the margins of those indulging in under invoicing.”
The inflation is more anti-poor than it is anti-rich. A weaker rupee would bring inflation back in the economy, while a stronger rupee would affect exports negatively only if the genuine drawbacks of exporters are not removed.