FOCUS
Prime Minister Nawaz Sharif last week announced a huge package of 180 billion rupees to boost the country’s exports which have been floundering since 2013.
The announcement came hot on the heels of the official data released by the Federal Bureau of Statistics showing widening of the trade deficit by 14.5 billion dollars or 22.2 percent during the first half of the current fiscal year.
In the last fiscal year, the trade deficit in the same period stood at 11.9 billion dollars.
According to the data, the exports stood at 9.9 billion dollars between July and December - 394 million dollars or 3.8 percent less than those of comparative period last year. The imports, on the other hand, jacked up to 24.4 billion dollars, which were 2.24 billion or 10.2 percent higher than those of the previous year in the same period.
If the official trade figures for the first half of the fiscal year are any guide, then it is hugely difficult, if not impossible, that the trade deficit would be more than the target set for the whole fiscal year.
The government had projected 20.5 billion trade deficit target for the whole fiscal year with exports predicted to grow to 24.7 billion dollars and imports at 45.2 billion dollars. The trade deficit for the entire fiscal now is now expected to hover around 24 to 25 billion dollars.
The trade figures have been showing the similar trend for the past three years or so.
The export earnings dwindled to 20.8 billion dollars in 2015-16 as against 25.1 billion dollars in the preceding year, registering a fall of nearly 20 percent.
Pakistan is not alone which has been facing a persistent fall in its exports over the past few years.
Many developing countries faced the same situation and much of this trend is attributed to a slowdown in China’s economy as it has been the main destination for the exports from these countries.
Analysts understand the decline in exports due to the falling global demand, however, they question the widening trade deficit in the wake of sharp decline in oil prices in the international market over the past two years.
Analysts say the decline in exports because of less global demand is understandable, but why is the trade deficit widening in the wake of sharp decline in oil prices in the international market over the past two years.
They also concede that there has been an overall decline in exports from many developing countries, however, some countries; including Pakistan, saw their exports fall more compared to others like India, Bangladesh, and Vietnam.
Apparently, the countries which suffered greater loss in exports have ceded their shares to competitors offering better quality and other incentives.
Textiles account for more than half of Pakistan’s exports, but it has lost ground to it neighbours mainly because of chronic energy shortages and underinvestment in machinery. Analysts say Pakistani authorities need to look into these factors and address them on priority basis to avert more losses in future.They say the problems of the exporter community should be tackled in a holistic manner, as financial packages involving reduction or lifting of duties and taxes alone would not resolve their problems. Under the recently announced package, the government agreed to abolish customs duty and sales tax on import of cotton. Similarly, customs duty on man-made fibre other than polyester and sales tax on import of textile machinery have also been done away with.
The package also envisaged seven percent duty draw back rates for textile garments, six percent for textiles, and five percent for processed fabric.
The prime minister expressed the confidence that the package would help achieve the objective of export-led growth.
However, critics and industry officials say the package appears more to be a fire-fighting exercise rather than a well thought-out strategy to seriously address the long-standing issues faced by the exporters for many years.
“This package seems to be a stop-gap arrangement,” former Finance Minister Salman Shah said.
The Pakistan Business Council, an advocacy forum, too described the exports package as a “first aid” and underscored that much more is needed to be done to address more fundamental challenges confronting exports and manufacturing.
“Without an integrated industrial and trade strategy, packages such as this are only temporary solutions,” the Council said in a statement. “There is a finite value limit of Rs180 billion. The recent experience of the fertiliser subsidy, which ran out of funds just six months from inception, must serve as a warning,” it stated.
The Council said Pakistan needs to focus on value-added exports to generate jobs and higher export earnings.
The council also listed a number of concerns expressed by the manufacturing sector like liberal import regime, poorly negotiated free trade pacts, uncontrolled smuggling, and energy crisis which need to be addressed in a proper and serious manner. Shah said Pakistan’s textiles industry needed complete “overhauling”.
“There is an energy crisis, there is a research and development issue, there is no innovation, and marketing is very weak. It needs thorough and complete overhauling.” Analysts say it is not just exports which have taken a hit in recent years, two other sources of foreign exchange - foreign remittances and foreign direct investment – have also shown a downward trend.
They say the persistent dip in the three key sources of foreign currency should be worrying for the government as it could put pressure on the country’s foreign exchange reserves to meet international debt obligations and foot the import bill in the coming months.
In such a situation, successive governments have resorted to more foreign borrowing which resulted in piling up the debt burden on the poor country.
Analysts, therefore, urge the rulers to take serious and concrete pre-emptive measures to avoid future troubles for the economy.
They say though the economy is in a far better position than it was three years ago, it is not totally out of the woods.
With political temperatures rising in the country and political parties, including the ruling party, readying themselves for the general elections due next year, it seems fixing the economy is no longer a priority for the rulers.
Such attitude runs the risk of wasting the gains made so far on the economic front. Just in the last decade, when the country was registering an average growth rate of seven percent for five years, the country plunged into a political turmoil which effectively derailed the economic reform programme.
Luckily, at present there are no threats to the existing political set up, and one hopes for a second, smooth transition of political government after general elections. However, one also does not want the badly needed economic reforms to be overtaken by political expediencies; economic issues should remain a major priority for rulers.
The writer is a senior journalist based in Islamabad
