Pakistan is faced with multiple crises on economic, political, and diplomatic fronts. One of the major causes of economic woes on the external side of the economy is the inability to diversify exports. The country has not been able to do so both in terms of products and markets to boost and fetch increased dollar earnings for Pakistan’s made ups under the rule of both civilian and military dictators.
INSIGHT
Pakistan is faced with multiple crises on economic, political, and diplomatic fronts. One of the major causes of economic woes on the external side of the economy is the inability to diversify exports. The country has not been able to do so both in terms of products and markets to boost and fetch increased dollar earnings for Pakistan’s made ups under the rule of both civilian and military dictators.
Exports have been passing through range trap of $20 to $25 billion and have not crossed the psychological barrier owing to existing structural issues. Pakistan’s exports reached $25 billion when the global prices went up, but again plummeted t0 $20 billion when the global prices witnessed declining trends. This psychological barrier can only be broken by undertaking required structural reforms.
The government needs to take measures such as reducing cost of doing business, increasing competitiveness, bringing efficiency, simplifying tax structure, and removing bureaucratic hurdles among others.
Only stuck up refunds worth billions of rupees with the Federal Board of Revenue (FBR) are causing immense problems for exporters to resolve their liquidity issues. Without reducing cost of utility and cost of doing business the dream of boosting exports cannot be achieved.
Unfortunately, Pakistan lagged behind even Bangladesh as its exports went up to $31 billion, while our exports hovered around $20 to $23 billion. Now, though the government was eyeing to cross $23 billion in the outgoing fiscal year, it looks peanuts keeping in mind the size and population of this country crossing 207 million. A country like Singapore, with a few million residents has crossed $500 billion exports.
This failure has left the rulers with no other option but to seek bailout packages from the International Monetary Fund (IMF) after every few years. The balance of payment crisis stems out from the low investment and savings ratios in terms of the gross domestic product.
We need to re-orient the whole mindset to bring export-led growth at the forefront of the narrative which at the moment revolves mostly around politics. Exports cannot achieve a quantum leap until and unless the whole nation starts contributing to producing exportable surplus at competitive rates and marketing it to different destinations to increase Pakistan’s share in global trade.
Several reasons can be cited for consistent failures, but the basic and pressing factor is that policy makers pay only lip service when it comes to turning the economy around.
Declaring export-led growth as the major driver of economic policies coupled with placement of all enabling factors can help the country achieve competitiveness in terms of reducing the cost of doing business. Without declaring it as the main agenda with the consensus of all the stakeholders, the dream of export-led growth cannot materialise into reality.
It is criminal negligence on part of the ruling Pakistan Muslim League-Nawaz (PML-N) that exports declined in the last five years from $25 billion to $20 billion. When Pakistan had successfully graduated the last IMF program in 2016, there was a chance to formulate export growth policies.
This correspondent had requested former finance minister Ishaq Dar to declare an emergency for boosting exports on an immediate basis, and also warned the minister that if it was not done, Pakistan had to go back to the IMF after few years.
However, it could not be done as different sides presented different reasons behind this failure. Some argued that the PML-N led regime did window dressing of the economy, which had to evaporate because it was not on sustained basis. The other side argued that the political instability that surfaced in the aftermath of Panama Leaks spoiled the opportunity to turnaround the economy on strong footings.
At the moment, Pakistan’s exports are highly concentrated in a few items like cotton and cotton manufactures, leather, rice, and some more items.
The first three categories of exports account for 70.8 percent of total exports during July-April with cotton and cotton manufactures alone contributing 58.7 percent. Traditionally, contribution of these three categories was over 71 percent during the same period last year, and 68.7 percent during FY16.
Although Pakistan trades with a large number of countries, its exports are highly concentrated in a few countries. About 55 percent of Pakistan’s exports go to 10 countries, namely US, China, UAE, Afghanistan, UK, Germany, France, Bangladesh, Italy, and Spain.
Furthermore, the US has the largest share in export by 16 percent followed by European countries 11 percent, in total exports. The data suggests that our exports to China have dropped from nine percent in FY15 to seven percent in FY18.
The share of export witnessed a decline in recent years from eight percent in 2016-17 to seven percent during current year, whereas, the share of exports to UAE remained stagnant. The share of exports to EU countries like France, Italy, Spain, etc remained relatively stagnant.
Pakistan’s trade managers are preparing Strategic Trade Policy Framework (STPF) for five years from 2018-2023, and decision has been taken at the highest levels that the approval would be taken from the incoming government assuming reins of power after winning the next general elections.
The Ministry of Commerce has decided to present different scenarios before the upcoming government. If the country achieves only 10 percent annual growth in exports the revenue could go up to $36.21 billion over the next five years. If exports grow 15 percent a year, the foreign revenue could increase to $47.28 billion. But, with 20 percent annual growth, Pakistan’s exports could touch $61.03 billion over the next five years.
The patchwork and window dressing cannot increase exports and Pakistan will have to devise medium to long-term plans to jump start its exports.
At a time when growth in remittances has choked and attracting foreign direct investment (FDI) remains a daunting task, Pakistan should declare an emergency to implement coordinated and harmonised plans to boost exports.
There is need to review all free trade agreements (FTAs) and preferential trade agreements (PTAs) on immediate basis to rectify clauses of agreements that were tantamount to harm the country’s trade interests. The FTA with China has been causing havoc with the country’s economy, and some remedial steps were required to improve the situation.
Without allowing regional trade, Pakistan cannot increase its exports. The need is to review policy and devise ways that promote exports as the core of all diplomatic fronts of the country. All trade and commercial counsellors in Pakistani embassies abroad should be given a target to boost exports, and in case of failure the concerned officials should be replaced immediately.
The fiscal and monetary policies should be aimed at improving exports. The exchange rate policy should be adopted in such a way that allows traders to compete with exporters of comparable economies at a level playing field.
The writer is a staff member
