RECORD TRADE DEFICIT FORESEEN
Shamim. A. Rizvi, Islamabad
May 04 - 10, 1996
The country is poised to have an all time-record trade deficit which may well cross the figure of 100 billion Rupees at the close of financial year 1995-96 by June 30 this year.
The Commerce Minister, Ahmed Mukhtar, who had been assuring the nation till last month that as a result of rupee devaluation further and other incentive allowed by the government, exports will pick up and "we will easily surpass the target of 9.5 billion dollars", admitted before reporters a few days back that it has not worked. Imports will cross 12 billion dollars while our exports will hardly touch the figure of 9 billion leaving a deficit of about 3 billion dollar approximately 105 billion rupees.
This miserable failure in the context of firm assurances and exorbitant cost of creating 2 additional divisions each headed by a Minister of State under the Minister of Commerce, has led to infighting between the various ministries who are now blaming each other for the situation. Federal Export Promotion Board led by Ministry of Commerce is blaming the Ministry of Finance and the Central Board of Revenue for the failure on export front because they failed to implement a number of measures approved by the federal cabinet in Oct. 95 along with devaluation of Rupee. These measures included the streamlining of the duty drawback system (amounting to over Rs 11 billion per year), introduction of the export rebate voucher system which were also decided in October, 1995, and the promulgation of ordinance to enable the exporters to get refunds of sales tax paid by them on local purchases of machinery and other items for exports, which was decided in March, 1996. In both cases the duty drawbacks and refund of sales tax will amount to a total of Rs 15 billion. Exporters argue that non-refund of these amounts was depriving them of their working capital, thus slowing down production and resulting in noncompliance of foreign orders of exports which they booked on government assurance that they would get prompt refunds and not require to pay sales tax on goods meant for exports.
On the other hand CBR maintains that scrutiny of duty drawback claim is an arduous job and it needed time. There are many bogus claims which can be sorted out only after proper checking. One is also surprised as to how delay in payment of duty drawback claim can cause a decline in exports.
That the government is very keen to boost exports is clearly manifested from appointment of 3 minister for state and a full fledged minister of commerce-all from trade and industry to achieve this coveted objective. While Chaudhri Ahmed Mukhtar is the Minister for Commerce, Mian Habibullah, former president of the Federation of Chamber of Commerce and Industry is chairman of the Export Promotion Bureau with the status of a minister of state. And now Mr. S.M. Muneer, who retired recently as president of the FPCCI, is being made chairman of the newly created international trade fairs and exhibitions authority with the rank of minister of state. The newly created export division is to have a minister of state in charge. This makes it a total of four ministers and ministers of state in charge of commerce. It can be a case of too many cooks spoiling the broth or too many ministers spoiling the trade with their jurisdictional conflicts and demands for priorities. The Prime Minister seems to think that this is the right game to play to win friends and influence people in the FPCCI. But despite the proliferation of ministers in the ministry of commerce, which will have many men at the top to do so little, the ministry has single secretary, Salman Farooqi, who is simultaneously secretary of the high profile environmental affairs division with Mr. Asif Zardari as the chairman of the environmental protection authority, which takes a lot of his time.
It remains to be seen how the ministry will function with Commerce Minister Ahmed Mukhtar and three ministers of state wanting to speak to Mr. Salman Farooqi while he is busy with his environmental duties, particularly after July 1 when the industries not complying with environmental rules are to be fined very heavily. In fact, Mr Asif Zardari has emerged as the effective commerce minister since he began leading large trade delegations to varying countries like South Korea and Australia, and became very accessible to the businessmen. In recognition of that the FPCCI hosted a luncheon for him on May 1 at Karachi with leading businessmen and industrialists invited from all over the country. All this is too confusing and can be very counter-productive and it has been amply proved by this year's performance.
Striking indeed is the fact that the exports have been disappointing despite the devaluation of the rupee by over 10 per cent since the June budget, inclusive of the 7 percent devaluation of October 28 last and the increase in the quantity of cotton available for export which fetched 341 million dollars in the first eight months period, and the Export Promotion Bureau's glib talk of a large increase in the export of non-traditional goods. Evidently the malaise is deeper than the government has been able to perceiveor admit. The causes are structural basically the high cost of production and exports which makes our products less competitive abroad and this problem has to be looked into critically and solutions found. But the problem in Pakistan is that even the duty refund has proved to be too vexatious and various means devised to expedite the process do not seem to be satisfactory, primarily because of the corruption in the Customs and malpractices in the trade.
A careful study shows that the devaluation of the rupee has contributed to the decline in export earnings. Pakistan industries are generally import oriented. Many of our industries depend upon imported raw materials. The devaluation of the rupee has inflated the cost of production. Hence, our exports could not survive such competition.