INSIGHT
Pakistan’s continuously declining exports remain one of the major economic concerns and both the finance and commerce ministers admit it has fallen by 11 percent during the first seven months of 2015-16. They blame global economic slowdown as the major reason for low exports.
Finance Minister Ishaq Dar told Senate last week that exports were $12.5 billion in the first seven months of the current financial year against $14.1 billion of the corresponding period last year. Similarly, he said imports declined by about seven percent during this period as compared to the same period last year to stand at $23.3 billion against $25.1 billion of the last year.
Exports are down since 2006 and almost no government made efforts to address the issue. As a result, one of the major foreign earning sectors is crying for genuine official patronage in line with regional countries particularly India, China, Sri Lanka, and Bangladesh.
Who does not know 2006 was the year when exports were up, including $2.1 billion that of bed wear industry that are now witnessing declining trends - thanks to the incompetent bosses of the ministry of finance, who hold responsible the finance minister and his team for not allowing them to operate independently.
If that was not enough, the current financial year is said to be causing more worries because of the destruction of the cotton crop. There will be 1.2 to 1.5 million less cotton bales. There will be more import of cotton this year for which the government is said to be willing to extend any support.
Low exports are mainly due to the weak liaison between the government and the exporters, who often lament that only those are consulted who do not have anything to do with exports. Exporters say that the bosses of the ministries of finance and commerce invite suggestions only from industrialists and businessmen who are not exporters. They claim that unless the prime minister ensures direct contact with the exporters, the dream of increasing exports would remain unfulfilled.
Although value-addition and diversification of exports is a major problem, the unbecoming conduct of the Pakistani officials abroad is also one of the reasons for declining exports. Since there is no merit and only the blue-eyed boys of the government are sent abroad to take the charge of the important positions like ambassadors and trade officers, the exporters’ community does not see the revival of exports.
“Bureaucratic hurdles coupled with snobbish attitude of the inefficient and incompetent officials at Pakistani embassies abroad is in fact the major reason for declining exports,” said the chairman of the bed wear association Shabbir Ahmad.
He said exporters are handicapped due to their Rs200 billion sales tax refunds stuck with the government which has to meet its fiscal deficit target given by the International Monetary Fund (IMF).
Part of the problem is the delay in the payment of refunds even after the completion of the Payment Release Order (PRO). As per law, the refunds must be offered after one month of the issuance of PRO, but exporters get cheques after six months. And this is done only in limited cases that often results in the piling of these sales tax funds. Refund is an advance tax and is not given back to the exporters in time that aggravates their funding problems.
The government says it has refunded Rs40 billion recently to the exporters and that some more will be paid off soon, but it is reluctant to give a certain figure of the outstanding refunds.
The ‘unrealistic’ exchange rate is another issue hindering exports. The IMF officials want Rs113 or Rs114 against dollar as the correct parity, but the government thinks it otherwise. The central bank often uses its influence over the exchange companies to maintain certain genuine exchange rate.
Exporters, however, maintain that they cannot compete with regional countries which often devalue their currencies against dollar to ensure regular increase in their exports. While in Pakistan, it is not done and hence it becomes a problem to even compete with Bangladesh and Sri Lanka.
The exporters are often harassed and blackmailed for graft by the officers of dozens of labour departments, particularly in Sindh. Exporters cannot survive without granting these grafts, and the authorities’ concerned need to look into this matter. There are no strict compliances by the labour department to help the exporters.
Also the government needs to use the Export Development Fund (EDF), which is in fact the money contributed by the exporters for innovation and adopting better strategies to boost exports.
The exports to European Union, despite the GSP Plus status to Pakistan also failed to register substantial growth. Instead, exports went down by 4.3 percent during the first six months of 2014-15. The GSP Plus was meant to offer additional over $1 billion exports to EU region. What went wrong is a vital question, but the government has so far been responding in only ifs and buts.
There is no denying that the economies of the EU, United States, China, and Middle East had been facing economic slowdown, but their governments managed their affairs to some extent by correctly assessing the situation and formulating new strategies. However, the situation in Pakistan kept compounding because of the looming energy crisis, which did not allow the exporters to meet their foreign orders. It is still a problem as on one hand their existing orders are being cancelled and on other hand they are unable to secure new orders.
Exporters and industrialists ask how to increase exports when the power and gas shortages have shutdown hundreds of industries in Punjab. The decreasing production capacity of the industries is also creating joblessness in the province. The power shortage has largely hit the spinning and weaving industries in the textile sector. Four major export categories – textiles, petroleum, food and other manufactured goods – has seen sharp decline, close to $2 billion in 2013-2014.
There is a consensus today that if the government succeeds in fixing the energy crisis, the decline in exports could considerably be stopped. It will certainly help the industry to enhance its production capacity to help meet export orders.
In the last financial year, after almost five years, Pakistan’s exports declined close to $24.9 billion, short by over $3 billion of its annual target. It went down further by about 14 percent to $8.5 billion during the first five months of 2015-16 compared to $10 billion of the same period last year. Generally government after government was blamed for their wrong policies. Delay in announcing the trade policy further causes problems for the export industry.
To sort these problems and boost exports, the government needs to ensure 10,000MW of additional electricity by 2018 and invest in the decaying infrastructure particularly to improve the over-aged transmission lines. Likewise, the import of new LNG from Qatar should also mitigate the suffering of the textile industry. At the same time the industry must get preferential treatment in terms of reduced power gas tariff with a view to increase exports.
The writer is a senior journalist based in Islamabad
