Only achievement the
government could make is rescheduling of foreign loans
Form Shamim Ahmed
Sep 27 - Oct 03, 1999
The present government has completed thirty one months in power but
nothing seems to have worked out specially on the economic front during this sufficiently
long period. Basic economic issues remain unattended , rather things have gone from bad to
During 31 months of PML government in power, apart from rhetoric and
cliches, nothing tangible has been achieved and no consistence economic strategy has been
evolved for increasing revenues, boosting exports, improving balance of payment position,
privatization of state enterprises and attracting foreign investment. The only achievement
the government could make is the rescheduling of foreign loans to the tune of about $3
billion till 2001 and thereby saving the country from default. This happened more because
of considerations other than economic and not for any promising performance shown by the
policies of the government. Default by Pakistan did not suit the donors either. Even
otherwise this amounts only to postponing the liabilities. It could be helpful to us only
if during this intervening of 2 years we are to revive our stagnant economy. Unfortunately
no such sign is visible so far.
Rising trade gap and declining foreign reserves are cause of grave
concern. Pakistan's official foreign exchange reserves have declined to $ 1.4 billion.
This signals trouble ahead if the trade deficit continues to rise at the current alarming
rate. In the past two months, this deficit has reached $ 369 million.
According to senior official sources in the Ministry of Finance, the
existing low forex level also includes $ 200 million of FE 25 deposits placed by
commercial banks with the State bank of Pakistan (SBP). This confirms that the widening
gap between imports and exports has resulted in a significant drawdown of the official
After facing a severe balance of payments crisis in 1998, when the
official reserve level fell to around $ 400 million Pakistan is currently implementing a
structural reform programme sponsored by the IMF. This programme also allowed the country
to negotiate a special financial arrangement with the official creditors of the Paris
Club. The formalization of debt rescheduling agreements with individual countries is still
being done as part of the Paris Club process. Likewise, about $ 877 million commercial
debts were also rescheduled by private creditors. The negotiations for rescheduling
eurobonds and the sovereign floating rate notes are also still underway.
All these efforts resulted in an improved reserve position of around
$1.6 to $ 1.8 billion in the past eight months. However, the pressure is rising again on
reserves due to the fall in remittances of overseas Pakistanis, delay in the IMF tranche
and the rising trade gap. In these circumstances, the government was required to
significantly enhance exports during the debt relief period of two years, to avoid a
similar situation in January 2001, when repayment of this debt becomes due.
However, the external trade performance in July and August is alarming,
experts say. Imports were $1.597 billion against exports of $ 1.228 billion. Although
exports showed a marginal increase of 0.99 per cent as compared to the corresponding
period of July-August 1998, in real terms it was insignificant. The corresponding period
of 1998 was in any case a poor basis for comparison as this was the period of sanctions
imposed after the nuclear tests of May 1998.
Increase in imports may be a sign of pick up but, given the current
fragile balance of payments position, Pakistan can ill afford a huge trade deficit.
Government officials claims that the import bill has increased due to a sharp rise in
crude oil prices in the international market. Secondly, they stated that the import of
wheat and fertilizer has also gone up.
If these three items are considered the factor behind the rising import
bill, it would mean that increase in imports would not help increase exports from
Pakistan. Neither it should have any positive impact on the industrial productivity. For
that to happen imports of machinery and other export inputs should be gong up. But that is
Last year the Prime Minister gave a target to his economic manager to
double the exports by year 2000. The Finance and Commerce Minister promised a zero trade
deficit for the year 1998-99 which ultimately ended with a deficit of $1.5 billion. 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, if 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 $ 0.849 billion this year. Realism is required for
economic management, particularly in a difficult period that the Pakistani economy is
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 she 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. Last year 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 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
everything 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 finance 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 six months back which are 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 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 called 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.