Money Matters

Trapped in loop

Money Matters
By Mehtab Haider.
Mon, 09, 20

Pakistan’s stagnant exports are hovering in the range of $20 to $25 billion over the last one decade as it depicted an inability to generate exportable surplus at competitive prices. The prevalence of adhocism, rent seeking, un-targeted subsidies, self vested interests and sudden rise and lofty profits are the hallmark of the whole policymaking process. The exports cannot be boosted in isolation as it requires crystal clear vision, innovation, competitive environment, persistent industrialisation, hassle free regulatory regime and right kind of markets to give impetus to boost up dwindling exports. However, this required mechanism could not be put in place.

Pakistan’s stagnant exports are hovering in the range of $20 to $25 billion over the last one decade as it depicted an inability to generate exportable surplus at competitive prices. The prevalence of adhocism, rent seeking, un-targeted subsidies, self vested interests and sudden rise and lofty profits are the hallmark of the whole policymaking process. The exports cannot be boosted in isolation as it requires crystal clear vision, innovation, competitive environment, persistent industrialisation, hassle free regulatory regime and right kind of markets to give impetus to boost up dwindling exports. However, this required mechanism could not be put in place.

There is a need to analyse and ascertain why the country failed to increase its exports despite tall claims made by every government coming into power in the last 20 years. The exports to gross domestic product (GDP) ratio remained one of the lowest in our comparable economies in regional countries.

The government used to frame Annual Trade Policy (ATP). The ATPs’ formulation process had included consultation with the public and private sector stakeholders such as trade bodies, ministries, trade offices abroad and provincial governments, review of the proposals, and final approval of the government. While the policy focus varied from policy to policy, the ATP generally comprised a review of the trade performance of previous year, and changes in the trade regime warranted by international commitments. But, the major export promotion driver was a set of export development initiatives (EDIs).

It is generally agreed that the ATPs did not contribute significantly towards improving the country’s balance of trade, particularly due to the limited scope of policy interventions and scanty implementation. The policy decisions requiring issuance of SROs were promptly implemented, but those requiring action by other departments and ministries, had inadequate implementation ratio. The major reasons for the low implementation of the ATPs were the inherent design flaws – lack of adequate research, long gestation period of some of the EDIs, budgetary constraints, limited implementation capacity of the relevant agencies, inadequate monitoring mechanism, and lack of impact evaluation process.

In order to broaden the scope of the policy, and to bring consistency and predictability in trade policies, the ATP was replaced with a three-year Strategic Trade Policy Framework (STPF) in 2009. There was no significant change in the formulation process of STPF compared with the ATPs.

The STPF 2009-12 aimed to achieve the ‘overall objective of achieving sustainable high economic growth through exports’ and with the ‘precise objective of bringing about a structural transformation in Pakistan’s exports’ through (i) supportive macro policies and services, (ii) enhancing product sophistication in Pakistan’s exports, (iii) enhancing firm level competitiveness, (iv) domestic commerce reform and development, (v) product and market diversification, and (vi) making trade work for sustainable development in Pakistan.

The policy instruments continued to be the same ie EDIs, institutional reforms and trade facilitation measures. Like the ATPs, the institutional mechanism for monitoring, evaluation and review of the policy, under the STPF, was also deficient.

The STPF (2012-15) focused on making the export sector as an engine of growth, enhancing the country’s export competitiveness in both short- and long-term, and targeting to increase the cumulative exports to $95 billion during 2012-15. The STPF (2012-15) aimed to achieve these objectives through (a) institutional strengthening and governance, (b) taking measures for enhancing export competitiveness, and (c) making regulatory amendments in the trade regulations.

However, no funds were released for the export development initiatives under the STPF (2012-15), mainly due to allegations of corruption in disbursements of funds under the previous STPF (2009-12).

The STPF (2015-18) was announced with the objectives of promoting exports, maximising gains from trade, enhancing competitiveness and fostering investment opportunities to achieve export-led-growth of the economy.

The STPF sought to enhance the annual exports to $35 billion by 2017-18, improve export competitiveness, transition from ‘factor-driven’ economy to ‘efficiency-driven’ and ‘innovation-driven’ economy and increase share in regional trade.

To achieve these targets, the policy was premised on four pillars ie (i) product sophistication and diversification, (ii) market access, (iii) institutional development and strengthening, and (iv) trade facilitation. Under these pillars certain policy initiatives and EDIs were announced eg technology up-gradation scheme, product development incentive, branding and certification development support, drawback of local taxes and levies (DLTL) and support for plant and machinery for agro processing.

A unique feature of STPF 2015-18 was the inclusion of a short-term export enhancement strategy, wherein, the products with potential for accelerated export growth due to small gestation period were identified for promotion in four focused markets with targeted export promotion interventions.

The STPF was announced with a delay of nine months, in March 2016 instead of June/July 2015, thereby reducing the policy period from three years to two years and three months.

In view of the corruption allegations in the incentive claims under STPF 2009-12, the disbursement of incentives under STPF 2015-18 was assigned to the State Bank of Pakistan (SBP). To avoid corruption, the eligibility criteria were made extra-stringent, making it difficult for the exporters to meet them under any of the schemes. The availability of funds also remained inadequate; out of the budget of Rs20 billion, only Rs1 billion were released during the entire policy period.

Based on the analysis of past trade policies and diagnosis of the causes of suboptimal export performance and gaps in implementation of the policy measures, it has been decided to revisit the policy framework. This policy document will be a living document with the option to review the proposed policy interventions and introduce new initiatives. In order to achieve a sustainable rapid export growth a comprehensive strategy has been devised to (a) optimise the growth of existing sectors in the short-term, (b) diversify into the new sectors with an ease of diversification in the medium-term, and (c) structurally develop the innovation-driven export sectors in the long-term.

Now for moving forward, Pakistan will have to achieve exportable surplus coupled with competitive prices in order to increase its exports. Without reducing cost of doing business and having surplus in desired sectors, the dream of releasing increased exports cannot be materialised.

It is the lesson of history and we as a nation will have to mend our ways to achieve an increase in our dwindling exports otherwise this recurrence of boom and bust cycles would continue haunting our generations.


The writer is a staff member