Temporary boost?

The Rs180 billion export incentives package  announced this week by Prime Minister Nawaz Sharif, set to last till June 2018, might be seen by some as a perk to receive support in the next general election. A less cynical reading, however, could see it as a much-needed boost for Pakistan’s dwindling exports sector. Each year since the traditionally pro-business PML-N took the helm of the federal government in 2013-14, Pakistan’s exports have declined. Pakistan’s exports stood at $24.5 billion in the last year of the PPP-led government in 2012-13. Last year (in 2016), exports fell to $20.8 billion. It is worth noting that two earlier export policies, announced in 2013 and 2016, remained unimplemented. The current package offers cash support and duty waivers for the five leading export sectors: textile, leather, surgical equipment, sports goods and carpets. Each sector has been offered between four and seven percent duty drawback. Similarly, most import duties on raw material exports for the textile industry have been abolished. While the duty drawback will have no conditions attached for the first six months, it will be conditional upon a 5 percent increase in exports in FY2017-2018.

Finance Minister Ishaq Dar has promised that these measures will deliver a 15 percent increase in exports by June 2018. This is a rather big promise to make, given that the downward trend has continued into the first half of this fiscal year. Exports have fallen by 3.8 percent for the July-December period compared to last year. This is despite the fact that the government announced a tax break for all five major export sectors in last year’s budget. So it is no surprise that there have been questions over whether the package will meet the same fate as the Kissan Package, which was barely able to stem the decline of agriculture in the country. The encouraging part seems to be that the package came when the government accepted the demands put forward by both the Federation of Pakistan Chamber of Commerce and Industry (FPCCI) and the All-Pakistan Textile Mills Association (APTMA). One assumes that those who run an industry are best equipped to propose ways to improve it. The trouble is that there is nothing in the package to improve the actual competitiveness of Pakistan’s exporters. Classical economic theory would have us believe that it is not subsidies and cash-back offers but investing in more efficient technologies, cost reduction and quality improvement that are the real drivers behind export increases. The current package addresses none of these concerns and only offers a short-term buffer to exporters, which could cosmetically show an improvement in exports but not address the more fundamental issues behind the decline of Pakistani exports.