Higher exportable surplus and improvement in unit price realization a must to boost exports

By SHABBIR H. KAZMI
May 08 -21, 2000

Improved export earnings, a reduction in the food import bill and substantial outright purchases from the overseas market has enabled the country to maintain a reasonable level of liquid reserves. In addition to this low inflation rate allowed some stability in the exchange rate that has not been witnessed in the recent past. However, the real concern is that the country may not be able to achieve the export target of US$ 9 billion and trade deficit, at the end of the financial year may swell to US$ 2 billion.

According to the third quarterly report for the year 1999-2000 of State Bank of Pakistan, country's trade deficit (on the basis of customs data) increased from US$ 940 million in the first three quarters of 1998-99 to over US$ 1.3 billion in the same period this year. Various reasons for the increase in trade deficit have been stated. 1998-99 was an exceptional year as ad hoc import restrictions were imposed to conserve gradual but consistent depletion of foreign exchange reserves. The exchange rate has remained stable during the current financial year as compared to significant depreciation of Pak rupee in the previous year. While there was significant increase in crude oil prices, international prices of cotton were much lower during 1999-2000 as compared to the previous year.

During the first quarter export receipts increased by 8.9 per cent as compared to previous year. However, it must be kept in mind that the previous year was exceptional and any comparison may not be correct. Export receipts are still much below when compared with the previous year. This is mainly due to low international prices of Pakistan's major exports.

Export receipts from cotton fabrics increased marginally. While the quantity increased by nearly 19 per cent the unit price realization dropped by over 22 per cent. Similarly, there was about 14 per cent growth in exports of cotton yarn mainly due to 22 per cent increase in quantity but at the same time unit price realization came down by 7 per cent. Knitwear exports, in quantity terms, registered an increase of 17.6 per cent. An important observation is that knitwear export has registered consistent increase after imposition of economic sanctions. Similarly, export of readymade garments registered 15 per cent increase and bedwear exports improved by about 19 per cent.

Pakistan's import bill in 1999-2000 has been dominated by a sharp increase in international prices of crude oil. However, lower imports of food items and machinery reduced the real and harsh impact of increase in oil import bill. The 28.5 per cent reduction in food imports is an impressive accomplishment. Oil (crude and products) import bill nearly doubled as compared to the previous year. This mainly contributed to 13 per cent increase in the total import bill of the country.

The oil import bill swell due to 78 per cent increase in prices and 14 per cent increase in quantities imported. While oil import is inelastic, a point to be noted is that a portion of oil import was financed on the basis of deferred payments to Saudi Arabia. If this facility had not been available, it is likely that the quantity imported would have been much lower and Pakistan's liquid reserves would have depleted more sharply.

Edible oil import bill during July-March 2000 period was US$ 316 million as compared to a figure of US$ 655 million during the same period last year. This reduction is attributed to reduction in quantity imported as well overall decline in prices.

The decision to increase the support price of wheat by 25 per cent has provided incentive to growers which will reduce dependency on imported wheat as well as curtail food import bill. However, the real benefit can only be achieved by giving constant attention to the agriculture sector.

The trend clearly indicates that if Pakistan is able to increase export of cotton based products and curtail its oil and food imports then the issue of trade deficit can be resolved. To curtail oil import the country must switchover from use of furnace oil to gas. Large scale discoveries of gas in the country has provided the necessary impetus.

Similarly, Pakistan can increase cotton output and production of textile and clothing. However, increase in quantity must be complimented by improvement in quality standards. Improvement in unit price realization is a must to reap the benefit during quota regime and maintain market share once quotas are completely phased out in the year 2005.

 

MAJOR EXPORTS
million dollar
Product	1999-2000	1998-99	Change%
Cotton Fabrics	810.9	808.3	0.3
Cotton Yarn	775.6	681.1	13.9
Knitwear	620.8	536.8	15.6
Readymade Garments	559.6	485.8	15.2
Bedwear	511.7	430.7	18.8
Synthetic Textile	325.1	293.6	10.7
Rice	404.8	389.0	4.1

 

---

 

MAJOR IMPORTS
million dollar
Product	1999-2000	1998-99	Change
POL	1,941.9	971.3	99.9
Food Items	876.2	1,225.4	(28.5)
Machinery	970.3	1,158.5	(16.2)
Chemicals	1,443.2	1,298.1	11.2