Cut in cost of doing business to help address trade deficit

LAHORE: There is a need to separately evaluate the impact of government policies and bad governance on cost of doing business in Pakistan. The remedial steps taken in light of this study are likely to increase exports and curtail imports.

The Rs180 billion export package announced by the government has not addressed the issue of high cost of doing business. The exporters face a dilemma in this regard.

The exports might slightly increase till June as the package allows the designated exporting sectors refunds on realisation of export proceeds on any export made from January 16, 2017 till June 30, 2017.

Thereafter, the refunds are linked with 10 percent increase in exports over the previous year. There is ambiguity on this count. Most of the exporters expect the government to go on giving the agreed refund up till June 2018, and ask for payback if the exports go below 10 percent.

Some bureaucratic circles believe that it would be prudent to pay refunds monthly, based on the exports executed during the corresponding month of the previous year. They say claiming payback from the exports would be a cumbersome job.

They contend that if refunds are made on monthly performance there is a chance that the exporters would make efforts to increase the exports by the desired percentage.

If they go on getting refunds on export proceeds at the rate of four, five, six or seven percent of the value of exports on monthly basis, the exports would increase exponentially in one year at a compound rate of 10 percent per month.

The export package only partially addresses the cost issues of five exporting sectors, but not of other exporting sectors.

Basmati is not a beneficiary of the export package, though it accounts for highest exports from Pakistan after the four textile sectors. Its exports declined by 21 percent during June 2016 to January 2017, which is higher than 1.5 percent decline in textile exports during the same period.

The cost of production of the goods produced domestically has also increased by the same proportion as that of exports goods. Still the domestic industry has not been awarded any package.

It is worth noting that domestic goods producers are the main contributors of taxes in Pakistan. The exporters are exempted from all taxes.

Just as the exporters are losing foreign markets, the domestic producers are losing the local market to the foreign manufacturers. The government gave incentives to the exporters to earn foreign exchange.

The government is not realising that it is losing precious foreign exchange on those imported items that earlier were being produced in the country.

The dilemma for the government is that it does not have resources to subsidise the domestic industry. It should therefore look into the causes that increase the cost of doing business of both exporters and domestic producers.

Under-invoicing, smuggling and mis-declaration are the main causes of pressure on domestic industries. All these menaces can be controlled through transparency and strict accountability of the bureaucrats that facilitate in promoting these unethical practices.

The power rates are high due to high distribution losses and pilfering of fuels from government owned thermal power stations. This again needs an iron hand against the corrupt. The power sector dues against private sector defaulters should be recovered immediately.