The persistent downward trend of the exports was substantially short of imports. This is something that needs urgent attention. Pakistan’s exports are on a decline, continuously for last three fiscal years. After achieving the record figure of $25.1 billion in 2013-14, overall exports declined to $23.7 billion in 2014-15 and further to $20.9 billion in 2015-16. This declining trend continued in the first 11 months of 2016-17 as well, totaling $18.5 billion and recording a further decline of 3.1 percent and because of this frequent decline in exports, in addition to around 20 percent increase in imports, Pakistan is faced with a huge record trade deficit of around $30 billion for 2016-17.
Pakistani exports are heavily concentrated in textiles. Out of $18.5 billion total exports in first 11 months of 2016-17, some $ 11.2 billion are textile products. This is more than 60 percent of the total. The remaining 40 percent is also concentrated heavily in three categories/items: rice, leather, and sports goods. It indicates that country’s export base is not broad-based enough. More than 17 percent of Pakistani exports are destined for a single market, the US. This is followed by some 7 to 8 percent to China. Five European nations like UK, Germany, Spain, Netherlands and Belgium absorb about 24 percent of Pakistani exports. Afghanistan gets between 6 to 7 percent annually.
Several other European nations are also among Pakistan’s top 20 export destinations. More than half of Pakistan’s total exports are destined to the US and Europe alone. If included China and Afghanistan this goes up to more than two-thirds of the total. Capacity and buying power in the main export destinations has decreased after the US and European financial crisis 2008-09 to 2013-14.
Pakistani exports during past three fiscal years have declined at a faster pace than the overall decline in exports to the US and EU, from rest of the world. Exports to China are also on the decline in net worth, which is not a result of the global financial crisis.
LACK OF ATTENTION
Trade Development Authority of Pakistan (TDAP) is entrusted to serve the purpose of increasing Pakistan’s exports. However, the concerned institution is observed by independent experts as ineffective. A large number of exhibitions are arranged and well attended all around the world but useful, meaningful and concrete results were not visible for past three years. Though exports such as softer export refinance facility, R&D financing, faster rebates antraded quarantine facilities have been announced, but export has not shown any good sign. A major fault in government policies is that the attention is mostly on further encouraging the textile industry.
Pakistan’s exports can be increased by focusing on non-traditional items, value addition in products such as rice, leather, sports goods. Tourism and health services can increase Pakistan’s services exports, which is not getting the due attention of policy makers.
Exporters on their part complain that Pakistani industry has been rendered uncompetitive because of shortages of energy and its high rates. Also large flows of imports dump from China. The tax administration creates hurdles in the way of growth of exports. Coming to what and how much we buy from the rest of the world, figures tell that Pakistan’s total imports during July 2016 to May 2017 stand at $48.5 billion dollars. Official data also indicates that imports from China account for 30.2 percent of total imports during July 2016 to January 2017 period. Some $14.6 billion of imports from China alone have reached Pakistan, which are not much less than commutative exports to the entire world, in the same period.
Being an agrarian economy imports food items above $3 billion is much of that edible oil and tea. It must be recognized that increase in imports in recent months is also due to increased import of capital goods and machinery, for CPEC and related projects. Despite all efforts by the government to enhance exports in 2016-17, the country’s goods export declined by 1.63 percent to $20.448 billion in (July-June) 2016-17 from $20.787 billion in the same period last year, according to the data released by the Pakistan Bureau of Statistic (PBS).
The Ministry of Finance announced several exports’ incentives this year, but none of them was implemented including Rs180 billion package to the textile industry, which was announced in January 2017. The federal government has set a target of $35 billion till 2018, but the analysts or the businessmen claimed the government’s export target is not achievable in such circumstances.
In the budget for 2017-18, the Finance Ministry was set to give some major incentives of rebate and zero-rated sales tax, to top five important textile sectors, for enhanced exports of their products. The exports receipts are not enough to keep government’s external account stable. Overseas Pakistani workers remitted $19,304 billion in fiscal year 2016-17 down by 3.1 percent or $610 million, compared with $19.917 billion received during the same period in the preceding year.
The IMF assessment shows that rupee was overvalued by at least 10 percent against the US currency, which significantly eroded Pakistan’s competitiveness in the global market. The federal finance ministry does not agree to this assessment and has decided to maintain the current exchange rate parity.
Punjab and Sindh are still facing the worst power and gas shortage. After a loud shout by the business communities, the government provided some relief to the industry by importing Liquefied Natural Gas (LNG). The government’s initiatives to import LNG fulfilled some demand of industrial sector in the last fiscal year, but it failed to provide gas and electricity to the industries. Had the government seriously implemented business plan as proposed by the textile industry and other export-oriented sectors, the country’s exports could increase manifold in last fiscal year.
The Commerce Ministry through the State Bank of Pakistan (SBP) had imposed cash margin condition on the import of CBU cars and other luxurious products, but the trade figures show there is no impact of it on country’s import. The government, however, claims that the overall imports increased only because of the textile machineries and other machineries under the agreement of China Pakistan Economic Corridor (CPEC).
The 10.7 percent growth in exports for fiscal year 2016-17 runs contrary to the government’s ambitious plan to take export earnings to $35 billion by the end of 2017-18 under the three-year Strategic Trade Policy Framework. The $35-billion target, which was set needs a much more rapid rise in annual earnings and a meager 10.7 percent growth, will not be sufficient to meet the goal, say experts. Even in the European Union member countries, Pakistan could not fully exploit the duty-free benefit, as its exports marginally grew to $7.28 billion during the last fiscal. These were just $215 million or 3.1 percent higher than the preceding year.
Imports are forecast to grow 14.7 percent to $45.2 billion in the upcoming fiscal year 2016-17 compared to an estimated $39.4 billion in the outgoing year 2015-16. Consequently, the trade deficit will be $20.4 billion in 2016-17 as opposed to a projected $17 billion in 2015-16. Experts point out that the government wasted an entire year in framing the Strategic Trade Policy Framework 2015-18 and now it has set only a 10.7 percent export growth target for the second year of the framework. “The $35-billion export target is unlikely to be achieved by June 2018; there must be at least 30 percent growth each year to meet this goal,” commented an official of the Ministry of Commerce.
In the annual plan, the government has outlined a number of initiatives to forge regional connectivity in an effort to boost bilateral and multilateral trade with countries in the region. The key measures include the resolution of outstanding issues in the Afghanistan-Pakistan Transit Trade Agreement and initiation of negotiations and early conclusion of the Afghanistan, Pakistan and Tajikistan Transit Trade Agreement. Effective implementation of the International Road Transport (TIR) convention and reactivation of the Quadrilateral Transit Trade Agreement among Pakistan, China, the Kyrgyz Republic and Kazakhstan are also in the priority list of government initiatives.
Apart from these, formulation of the Pakistan, Afghanistan and Central Asia regional economic integration framework through a regional trade office in the Ministry of Commerce is also part of the priority list. The government claims that the initiatives have been planned by taking all the stakeholders and relevant ministries on board.
For a short-term boost to exports, basmati rice, horticulture goods, meat products and jewellery will be given preference with focus on the markets of Iran, Afghanistan, China and the European Union. To market Pakistan’s high-quality rice, the government will facilitate the import of parboiling machinery and provide incentives for branding and certification. Assistance will also be ensured for developing warehousing facilities in Iran and Saudi Arabia.
Basmati rice, kinnow and meat products can capture Iran’s market. Under a strategy, infrastructure will be developed for access to the Iranian market through the land route. On the other hand, rice, cotton yarn, fabrics and garments could be exported to China through strategic interventions. The government will update the stakeholders on concessions under the China-Pakistan free trade agreement (FTA) and will put talks on second phase of the FTA on a fast track.
MEASURES FOR ENHANCING EXPORT
Under the annual plan, the government will provide 50 percent support for the import of new plant and machinery for specified under-developed regions. Besides, it will offer 100 percent mark-up support on the import cost of new plant and machinery for industrial units across the country. A matching grant up to a maximum of Rs5 million will be provided for specified plant and machinery or other specified items to encourage innovation in the small and medium enterprises and export sectors. A common facility centre for the surgical instrument industry will also be established to push export of its products. The estimation of PSEB suggested that exports of freelancer of IT sector stands at more than $200 million per year.
State Bank of Pakistan has taken a series of concrete steps to streamline exports income of the Information Technology industry through the banking sector, which could reduce the under-reporting foreign exchange earning of IT and its enabled services. The implementation of the instructions of the central banks to commercial banks and software houses will lead to identify the nearest figure of IT exports values on monthly and annually basis, which will also help all stakeholders to realize the potential and status of IT sector in the country.
IT industry has the biggest potential in Pakistan with a capacity to expand itself domestically and internationally for exports of services when it comes to support of the government through policies and tax incentives. The government realizes that it has an important role in providing a comfortable environment for the growth of the IT industry through infrastructure and HR development.
The government has set a vision to enhance the exports of this sector to $5 billion per annum by 2020, which is not an impossible target. The measures of the central bank for streamlining forex inflows in IT sector coupled with the government policies are likely to give impetus to IT companies and software houses especially to enhance the exports of different services and products worldwide. A number of IT parks are being developed in the country along with continuous expansion of broadband services in the different cities to make the ecosystem an attractive and lucrative for IT companies, entrepreneurs and starter-ups.
The Ministry of Commerce has also set up huge trade formations in various parts of the world with a single motive of enhancing Pakistan’s exports. However, the export data suggests that the trade missions have not lived up to expectations.