Govt, private sector need to work closer to offset falling exports

LAHORE: Declining exports, despite stable rupee and low inflation and interest rates, should be a matter of concern both for the government and the private sector. Deficiencies in government policies should be plugged and inefficiencies in the private sector ought to be removed.

Both government and the private sector are, however, not prepared for a change. The government thinks that stable macroeconomic indicators should boost exports. The government has failed to improve governance and to boost domestic commerce as massive under invoicing continues to hurt the locals. The government has failed to increase tax revenues -- still 11 percent of GDP against 17 percent in neighbouring India. 

Governance failure is increasing the cost of doing business in Pakistan. Low inflation and interest rates are saving the economy from a collapse.

The private sector asks for concessions to increase penetration in global markets. They demand the government to devalue the rupee. These exporters have forgotten the lessons from the past. Pakistani rupee was regularly devalued from 1989-1998 but there was a nominal increase in exports – much lower than the percentage of devaluation.

Rupee traded between Rs51.6 and Rs52.04 against the dollar from July 1999 to June 2000 and the exports totaled $8.569 billion in fiscal year of 1999/2000, up 10 per cent over previous year. The inflation was 3.51 percent.

The dollar value gradually increased to Rs63.4 in June 2001 from Rs52.5 in July 2000. It was a massive decline of almost 20 per cent in rupee value in a year. However, the exports did not correspond to the decline in rupee value and merely increased $700 million to $9.2 billion. This increase was aided by low consumer price index inflation (CPI) of 4.41 percent.

The year 2001/02 was a year of turmoil for the economy because of the 9/11 terror attack that slowed down exports to the United States and European Union. However, after the increase in rupee value afterwards the country suffered a nominal decline in exports that amounted to $9.13 billion. The rupee appreciated against the dollar to Rs60.12 in June 2002 from Rs64.09 in July 2001. The CPI inflation was 3.54 percent.

The rupee appreciated against the dollar to Rs57.7 in 2003 from Rs59.7 in 2002. The exports rose 21 percent on the strength of appreciating rupee value to $11.16 billion again aided by extremely low CPI of 3.1 percent. In 2003/04, the rupee value hovered between Rs57.7 and Rs57.9 and inflation was 4.57 percent. The exports increased more than 10 percent to $12.3 billion. The following fiscal year, the exports increased 16 percent to $14.39 billion as rupee value increased to Rs59.66 in June 2005 from Rs58.27 in July 2004 and the inflation stood at 9.58 percent.

In 2005/06, exports were $16.45 billion as against the inflation rate of 7.92 percent but dollar remained stable at Rs60.16. The exports amounted to $16.97 billion by the June-end 2007 and rupee value again remained almost stable at Rs60.60 and inflation was 7.77 percent. In 2007-08, the rupee was valued at Rs60.39, but its value gradually increased to Rs67.25 by the June-end 2008; the exports increased to $19.05 billion and inflation was 12 percent. 

In 2008/09, inflation averaged at 20.3 percent while the rupee value depreciated rapidly to reach Rs80 against the dollar by November 2008 and remained in the same range by the June-end 2009. The exports dipped 6.1 percent to $17.69 billion. The exports increased to $19.34 percent in 2009-10 when the rupee decline was restricted to around five percent and the inflation averaged 12 percent. 

 The economic managers attribute the current decline in exports to global economic slowdown, which is partially true. The exports declined in India and China for almost one year, but now are resurging in both the countries. Bangladesh and Vietnam that mainly export textiles saw healthy increase in exports during the past 15 months. Pakistan is now the only country in the region where the exports are still declining. Instead of subsidies and concessions, government and private sector would have to move in tandem to remove bottlenecks to exports.