Economic problems have been hiding under the surface of the Pakistani economy despite the optimistic rhetoric of Finance Minister Ishaq Dar for the last four years. The growing trade deficit could very well be responsible for the next government to be forced into accepting another bailout package. The facts are simple: imports have been rising, exports have been falling, and remittances are almost static. The worrying thing about the rise in imports is that it has come despite low oil prices. Any upward variation in oil prices would send the economy spiralling downwards as foreign exchange reserves would fall quicker. Already, the trade deficit last year spiralled to $12.6 billion. The omens for the current year suggest a worse picture is looming. In the first two months of the financial year, the trade deficit has already hit around $2.8 billion. This is a clear indicator that the measures outlined to promote exports and decrease imports in Budget 2017-18 are not working. The recognition of this failure is not enough to rectify it. The government will need to take concrete steps going forward.
The question is whether the steps charted out in last Friday’s meeting of the Economic Coordination Committee (ECC) are sufficient. The cabinet decided to impose regulatory duties on up to 250 items and also decided to expand the incentives package for exporters. The trouble is that the 5 to 25 percent regulatory duties are relatively low, which would be unlikely to change the consumption of the said good in the country, especially since most imports cater to the luxury goods market. The positive consequence could be the possible Rs20 billion increase in tax revenues. However, small tariff increases are unlikely to deter an economy reliant on consumer spending. Moreover, it is hard to make sense of the impact of these tariffs when the details of what percentage of imports they make up are not available. We know that the bulk of the import bill continues to be taken up by oil but efforts to reduce oil consumption do not seem to be on the horizon any time soon. If anything, the creation of new power plants in the country approved in the same ECC meeting is likely to increase the import bill. The measures pertaining to improving exports are standard and suffer from the same criticism as before: the fall in exports is a structural not a cosmetic issue. Tax incentives for exporters will not increase exports on their own. Exporters would gladly sell more products outside the country if they are able to compete in the international market. What is needed are measures to improve the competitiveness of Pakistani exporters. This calls for a long-term vision which the government is simply unwilling to look into. The measures might be well-intentioned but will barely make a dent on the economic problems the country is facing.