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Trade deficit soars to $ 1.449 bn in 1998-99
'Zero trade deficit target may not be achieved because exports have not picked up despite best efforts by the government'

  1. Restricted growth of ship breaking industry
  2. Trade deficits soars to $1.449 bn
  3. Agri sector given less importance in budget
  4. Declining sales of two-wheelers
  5. Solar energy: Substitute for oil

From Shamim Ahmed Rizvi, Islamabad
July 12-18, 1999

The final figures of Exports, Imports and the trade deficit for the fiscal year 1998-99, which are now available, reveal that the trade deficit for the out-going fiscal year has soared to $ 1.449 billion against the target of $ 0.121 billion.

The Minister for Finance and Commerce has admitted in April last that zero trade deficit target may not be achieved because exports have not picked up despite best efforts by the government. He had, however, estimated that the fiscal year 1998-99 will close with a trade deficit of slightly over $ 1 billion. It has ended well over his estimates at almost $ 1.5 billion.

The rise in imports of 7.53 per cent, from the target of $ 8.42 billion to $ 9.054 billion, was one contributory factor. The other was the fall in exports of 8.36 per cent, from the target of $ 8.299 billion to $ 7.605 billion. The strategy pursued by our economic planners to defend the balance of payments from complete collapse in the wake of the May 1998 nuclear tests and the sanctions which followed, concentrated on demand contraction in order to keep imports low, while offering incentives for boosting exports, and thereby keeping the trade deficit within manageable parameters. However, even strict demand contraction policies failed to restrict imports to the extent hoped for, while the perfectly predictable impact of demand contraction on exports, brought about a fall of $ 0.694 billion. The other aspect of this performance relates to the calculations which went into the expectation that the trade deficit could be held to a paltry $ 0.12 billion, when all the economic indicators, as well as the state of the international market, counselled prudence in setting targets. The eventual trade deficit for 1998-99 of $ 1.449 billion may be lower than the 1997-98, when the deficit was $ 1.867 billion, but this owes more to the recessionary conditions in the economy rather than any satisfactory performance in trade. If the target for 1998-99 now appears wholly unrealistic, what can one say about the target set for 1999-2000. The exports target has been set at $ 9 billion, and the imports target at $ 9.8 billion, leaving a trade deficit target of $ 0.8 billion. And this target, it is revealed, has set after the suggestion of a zero trade deficit target was finally turned down. The point is whether the economic trends and indicators justify the expectation that the trade deficit will decline by $ 0.649 billion this year? Realism is required for economic management, particularly in a difficult period that the Pakistani economy is passing through.

Although, the trade deficit may have improved since the historical high of $ 3.574 billion or 5.7 per cent of GDP since 1996-97, the trends betray a tendency on the part of the economic managers to set unrealistic targets not related to the real state of the economy, and to be so narrowly wedded to defending the balance of payments that they have lost sight of the need to simultaneously adopt measures to revive the economy.

The export target fixed for fiscal year 1999-2000 may appear optimistic in the context of our previous year performance but it is certainly achievable with extra efforts. Nobody agrees with the Prime Minister's wishful thinking that exports can be doubled in 2 years time but there is a consensus in the relevant circles that there can be a quantum jump and a target of $ 10 billion could be achieved if the recommendations,. made by the committee appointed by the Prime Minister to suggest measures to boost exports, are implemented. A few months back the Prime Minister addressed all the Chambers of Commerce and industry and held series of meetings with businessmen throughout the country and made impassioned appeals to them to help him in achieving his cherished goal. Addressing the member of business community in Lahore the Prime Minister had said, "To some people, doubling of export in two years looked like very ambitious target, but I want to assure them that with determination and total commitment every thing can be achieved. To some people, even the prospects of exploding a nuclear bomb appeared too ambitious but we have achieved it with a big bang."

The competitiveness, diversification and knowledge of the markets demands are considered as the main factor for achieving higher market share in the world. However, such research-based efforts were not followed in Pakistan, which at one time, was exporting more than the combine exports of East Asian tigers. Now it can hardly compare itself with any of them.

Direction of the exports had also remained more or less the same over the years, with 30 per cent to European Community, 18 per cent to the United States and seven per cent to the United Kingdom. Exports to Japan had, however, declined as a result of recession in the Japanese market to 4.2 per cent in 1997-98 from 8 per cent in 1993-94.

The fall in Pakistan's exports is attributed to the high cost of inputs, like imported raw materials, fuel, electricity, credit and transportation and devaluation of local currency. To provide additional relief apart from higher rupee earnings the government has allowed refinance facility for the export of all counts of yarn.

The special committee, appointed by the Prime Minister to formulate proposals and recommendations to boost the exports, submitted its report to the Prime Minister about 2 months back which is still under consideration. These recommendations have given due importance of making the exports from the country competitive in the world market thereby encouraging export industries to maximize production and increase exportable surplus. The committee has also rightly emphasized the need to make export refinance less expensive which is an important suggestion to improve the competitiveness of our exportables in the world market. The suggestion that the mark up on higher value added goods for exports should not exceed 4 per cent and that the general rate of export finance should not be more than 6 per cent as compared to the present rate of 8 per cent, appears to be fairly reasonable. Additionally, the special committee has demanded a 30 per cent cut in the electricity tariff for export industries and that the lending rate in general by banks to business and industry should not exceed 14 per cent.

The most important suggestion calls upon the government to establish a high-level Export Development Authority under the chairmanship of Prime Minister and appoint an executive Vice Chairman from the private sector. This suggestion appears to be quite reasonable if seen in the context of the need to give top priority to tempo of exports and that is why it is desired by the committee that the Prime Minister should be kept fully abreast of day to day situation on the export front.

There can be no two opinions that export efforts need to be revamped with maximum possible incentives to the export related industries especially the textile sector. The manufacturing sector catering for exports, it may be emphasized, would do well to optimize the results of these incentives by giving constant attention to cost management and improvement in the quality of the products besides showing dynamism in exploring export markets globally without depending too much on quota countries.