Mar 9 - 15, 2009

Although, Asian Development Bank and IMF have expressed satisfactions over the improvement in and 'resilience' of macro economic indicators in Pakistan, industrial experts are foreseeing grim outlook for Pakistan's export-driven economy. "The impact of international trade shocks are to be really perceptible in the remaining part of the current financial year," prophesied Mian Zahid Husain, Chairman Korangi Association of Trade and Industry (KATI) while talking to PAGE. It is surfacing as "we are running out of orders and next five months are crucial for exports". He says exports target for this fiscal year will not be achievable.

Federal Bureau of Statistics recorded $10.88 billion export proceeds during July-Jan FY09, up by 7.58% when compared to $10.12 billion in the comparable period last fiscal year. Board of Investment recorded $13.25 billion exports during July-Jan FY09. 'Of course, increase in exports in percentage was registered during seven months of the current fiscal year, quantum wise there was no better results,' he replied referring to Pak rupee depreciation against the greenback. Rupee devaluation against dollar gave advantage to exporters but resulted in production slowdown, he explained. On one hand, rupee depreciation against dollar by 30% earned them monetary benefits; production was decelerated in similar percentage on the other. 'So I believe, actual export revenue was around $7 billion instead of $10 or 11 billion when one considers exchange rate depreciation or exports quantum.'

He is concerned about persistent decline in production in industries. Low utilization of industrial production capacity is leading to layoffs at worst, he lamented. Around 300,000 employees lost their jobs due to production slowdown in Karachi. Fifty thousand was only in KATI which has 700 to 800 active members out of 4,000 companies and 70 to 80 percent export based industries out of total. During March-December, 2008, US dollar edged up 21% in value against Pak rupee. Main reason was drawdown of Pakistan's foreign exchange reserves, plunging to a weak import coverage level of $6.4 billion by November 25, 2008 from $11.4 billion five months back. Afterwards, IMF $3.1 billion loan helped replenishment of reserves.

According to the World Bank, Pakistan's dependence over foreign funding made it vulnerable to what it terms two rounds of global economic crisis: One that caused contraction of buying power affected exports; second financial crisis. Although, the bank stroke out Pakistan and other developing economies from the list of victims of international financial market upheavals, it is not oblivious of the impact of waning foreign cash inflows over their foreign funded economies. In a review analyzing impact of global recession over South Asia, it noted macro economic difficulties, political and social disorders obstructing recovery from trade shock.

Zahid Hussain termed high interest rate, energy crisis, worsening law and order as core issues imperiling industrial production. He said in past unpredictable rise in prices of oil and commodities and then sudden fallback of them hamstrung the ability of internally disturbed Pakistan to chime in with the fluctuation. 'Much internal instability exacerbated Pakistan's ability to respond to international dynamics.'

Despite that, total export revenue showed upward trend during July-Jan FY09 it fell down for textile group that is one of the few foreign exchange spinners to the national economy-down by 3.79% to $5.82 billion from an earlier $6.05 billion. Value added textile exports also decreased. Not only Pakistan's total exports but also textile exports have very small numbers of destinations (countries), importantly, which are integral part of world economic recession. In addition, high input cost of local textile goods finds diminutive place in international market overwhelmed with low cost Bangladeshi and Chinese substitutes.

Export of readymade garments from Pakistan registered relatively drastic decrease during the period under review, tumbling down by 11.93% to $724 million as against $822 million in the comparable period. "Government can bring down cost of production by 11% if it exempts apparel sector of certain federal and provincial levies," advised Jamshed Hanif, Chairman Pakistan Apparel Forum, representative syndicate of Pakistan Readymade Garments Manufacturers and Exporters Association (Prgmea), Pakistan Hosiery Manufacturers Association, etc. He proposes if government is unable to continue dispersal of 6% research and development funds to textile exporters then it suspends social security fund, EOBI, education cess that will relieve them of 11% extra production cost that was in addition to couple of detrimental energy tariffs, rising labor cost, and other overheads.

Alternatively, government should limit R&D fund to apparel sector, which has latent potential of increasing exports revenue to five to six billion dollars, he told this scribe. Flourishing apparel sector will produce vertical and horizontal chain reactions in spinning and weaving industries for instance. He is unwary of global recession being forceful in pulling down Pakistan's export revenue. "We are supplying garments to France, Greece, etc.," asserted Jamshed Hanif, who also is central chairperson of Prgmea, when asked if spurt of coiling world economy has anything to do with drop in textile exports. He said garments exports should be increased. For that, government must provide value added sector with incentives, similar to that offered in China and Bangladesh. State bank of Pakistan has recently extended date of reimbursement of export finance sanctioned to exporters under export financing scheme to June-end this year. The grace period is for those exporters whose export proceeds are overdue. Jamshed is critical of partly 40% disbursement of total R&D claim of individual exporters. Despite that, government has shortage of finance it should avoid half measures to set right internal problems, he said. He saw grim outlook for textile industry lest government is indecisive. World Bank recommends fiscal space with macro economic stability, public spending, job creation, banking sector efficiency, and domestic productivity for surging exports.