State Bank calls for diversifying export destinations

KARACHI: The State Bank of Pakistan (SBP) has expressed its dissatisfaction with the exports performance of Pakistan and recommended diversifying export destinations by increasing the share of emerging economies gradually.

A study released by the central bank this week presented a comparison between export performance during the last decade of Pakistan and Bangladesh using the Constant Market Share (CMS).

The findings of the report prepared by Asif Mahmood, deputy director of the Monetary Policy Department, of the central bank, indicated that both small open economies have a significant effect of increase in globalisation during the last decade.

“Notwithstanding, the significant gain in exports from globalisation effect were largely offset by no real change in the composition of commodities exported and also of no substantial change in export destinations in case of both the countries,” it said.

“In terms of gain from competiveness, the government policies and non-price factors; however, Bangladesh exports performance was found to be far better than that of Pakistan’s,” the study added.

This inference can also be validated by the fact that as compared to dismal performance in the case of Pakistan, exports contribution is consistently increasing in Bangladesh’s output growth and also in world exports.

The central bank recommended measures to improve the exports performance of Pakistan, as well as improving the balance of payments position.

The SBP recommended it is an inevitable need to devise such policies that lessen the share of exports of primary products overtime, while increase the share of manufactured products.

“There is also a need to diversify export destinations by increasing the share of emerging economies gradually,” the report said. Finally, policymakers must ensure stable economic and political environment in the country,” it added.

The report also proposed effective governance system, availability of electricity, efficient and effective policies to address the small exporters need, and importantly, prudent management of the foreign exchange markets.

In the earlier part of the report, the SBP said that the market distribution effect, despite similar destinations to that of Pakistan, Bangladesh exports still managed to get positive impact, particularly during 2007/10 when the Western markets were in deep level of recession.

“This highlights the underlying fact that Bangladesh is gradually diversifying its exports base from advance to emerging markets since the share of former declined from 90 percent to 70 percent in total exports during 2004/10,” the report said.

On the other hand, no tangible efforts can be observed in the case of Pakistan to diversify its export markets overtime. Moreover, unlike Pakistan, the residual effect was not only found to be positive, but also quite large in the case of Bangladesh.