From Shamim Ahmed
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
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.