SBP stresses for policy reform to reduce imports

KARACHI: State Bank of Pakistan (SBP) stressed a need to revisit industrial policies and bring uniformity in them to ease reliance of industries on superfluous imports.

SBP, in a report, said currently the industrial policies are “semi-liberalised, non-uniform, and (based on) escalating tariff structure.”

“This has not only diverted export orientation of the industrial sector but also made it import dependent by hindering the formation of strong backward linkages in the economy,” it added in the latest report on state of the economy.

The central bank said the country ranks low amongst the regional peers in ease of business 2017 that underscores the need of reforms. The reforms will enhance productivity and efficiency in the economy to enable local producers to compete both on domestic and international fronts. 

SBP said the cost of doing business should be reduced, while export base must be expanded. It advised that textile production mix should be changed in line with the changing demand pattern in the world. 

The central bank urged the government to tap export potential of services sector, which is the largest sector of the economy.

“Drawing from the experiences of leaders in global services exports, like Philippines and India, Pakistan has the potential in exports of ICT- (information and communication technology) related and business process outsourcing services,” it said. “This is also worth noting that Pakistan has comparative advantage over regional peers in terms of lower labour costs and large young, English-speaking talent pool.” 

SBP said the task will follow policy support for the development of business skills and linkages with the global market. 

IT exports nearly doubled in the past four years with the country becoming of the top four contributors to the world’s leading freelancing website Upwork. 

Ministry of information and technology envisaged at least $5 billion in export earnings from the sector by 2020 and $10 billion by 2025.

The central bank further said the private sector also needs to venture in export of agriculture and dairy products by generating exportable surplus through enhanced crop yields and reduced cost of production by encouraging corporate farming. 

“In this regard, the importance of managing water resources and their efficient utilisation in agriculture using latest technologies (like drip irrigation system) can hardly be overemphasised,” it added. “In fact, this has become extremely important as the gap between slowly falling water supply and growing demand especially due to rising population and urbanisation has been increasing steadily.”

SBP said increase in access of small and medium enterprises (SME) and agriculture sectors to finance can also help in boosting exports and reducing dependence on imports.   

It said share of SMEs in total private sector credit fell to 5.9 percent during the last fiscal year from around 15 percent in FY2008. 

“Such a low exposure of banks to SMEs is despite the fact that these enterprises contribute 30 percent to GDP, 25 percent to exports of manufactured goods, and 35 percent to manufacturing value added,” it added. 

The central bank is working on a roadmap to explore issues and identify the constraints from both the SME and banks’ sides.