Home / This Week / Cover Stories / Understanding reasons for paltry exports

Understanding reasons for paltry exports

Pakistan emerged as a sovereign country in 1947 on the world map. The areas which comprise the country now didn’t have a strong industrial base. Over the last seven decades, the policy planners have been experimenting with different policies, which have failed in developing a robust industrial base. Pakistan’s exports have remained mostly confined to cotton textile and paltry to support imports. At the best, the country enjoys the status of ‘supplier of raw material and intermediate goods’. Though, some islands of excellence have emerged, ‘Made in Pakistan’ label has not attained the status it should have. This demands a thorough probe and a complete revamping of the government policies.

The policy planners have been experimenting with different policies, which included: exploiting comparative advantage, import substitution, nationalization and privatization. All these policies have inherent advantages and disadvantages but failure to draw the benefits can only be attributed to poor implementation and makes textiles and clothing industry of Pakistan a perfect case study. The country is among the top five cotton producing countries, but its share in international trade of textiles and clothing is dismal, less than 3%. Textiles and clothing export of Bangladesh, which does not produce cotton, is much higher as compared to Pakistan. It is often said that in international trade of textiles and clothing, Bangladesh enjoys more incentives as compared to Pakistan. It is also true that for decades Pakistan has also enjoyed similar incentives but could not reap the true benefits.

One of the inherent weaknesses of the policy makers has been that they behave like ostrich. At present the country suffers from three contentious deficits: 1) budget deficit, 2) current account deficit and above all 3) confidence deficit. Ever since the incumbent government has come into power it has been making tall claims but ground realities tell the opposite. In its quarterly review report State Bank of Pakistan says, “The recent significant gains in export growth and foreign direct investment are welcome development. However, the gains were not enough to contain the overall balance of payment deficit”.

The report also highlights, “The widening of current account deficit along with an increase in economic activity is a recurring phenomenon for Pakistan, and one that has the tendency of disrupting growth cycle. There is, hence, an urgent need to find innovative policy mixes, avenues for raising foreign exchange earnings, and realigning policies favoring export”. The report also underlines the need to address long-standing structural reforms in the fiscal and external sectors.

 

The most alarming situation is that the current account marks a deficit of US$7.41 billion for the first half of current financial year, up by over 59%YoY reflecting an expanding of trade deficit at an alarming rate. Higher imports, particularly oil and machinery, are out spacing relatively lower growth in exports. The current account weakness is expected to continue and likely to rise to nearly US$16 billion for the full year, or 5% of GDP mainly due to higher trade deficit and plateaued remittance flow. While total export are expected to post a growth of 9% on the back of currency devaluation and the textile incentive package, the increase is expected to fall short of 11% growth in imports. Analysts apprehend that country’s foreign reserves may decline due to debt servicing, likely to rise to more than US$3.7 billion during second half of the current financial years.

An illusion is being created by listing potential positives: 1) anticipated tax amnesty scheme, 2) bail out grant from Saudi Arabia, 3) additional issuance of US$ denominated bonds and 4) currency swap agreements for financing bilateral trade. It seems efforts are on soliciting loans for debt servicing rather than boosting exports and enhancing inward remittances. Hopes are once again pined on textile exports saying that in the second half the growth will be at a faster pace. One can still recall that a lot of hype was created when the European Union granted Pakistan GSP Plus status. However, little was achieved as Pakistan failed in boosting exports due to lingering power crisis and ever rising cost of doing business.

It is on record that despite having exportable surplus Pakistan has not been able to export fertilizer, wheat, sugar and cement. The government announced to pay subsidy to urea manufacturers and fixed an indicative target of 600,000 tons to ease the prevailing glut. However, the government didn’t pay any subsidy on export of urea, a clear breach of commitment. It appears that the incumbent government has strong links with textile tycoons, who continue to dominate policy announcements. It will also be appropriate to say that since inception textile industry in Pakistan has been flourishing on government support, but the beneficiaries are a few tycoons, mostly the owners of spinning and weaving mills. Value adding sector has not been offered the incentives it deserves. It is because of the illusion that spinning is the backbone of Pakistan’s economy.

It is also not a secret that ruling junta and opposition own large number of sugar mills. Lately, National Bank of Pakistan has been asked to provide loans to sugar mills to enable them to overcome liquidity crunch. According to newspaper reports the apex court approved the sugarcane support price and also directed the Cane Commissioner to notify the new price. One completely fails to understand such incentives because these will further increase the cost of production of sugar and render the mills uncompetitive in the global markets.

Check Also

Improving LSM sector sees strong future

Improving LSM sector sees strong future

After registering a 10-year high growth of 5.7 percent last year, large scale manufacturing (LSM) …

Leave a Reply