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"Getting tougher and tougher"

CBR-Traders tussle


Jan 22 - 28, 2001

Despite all rhetoric, concessions and strategies devised by the businessman Commerce Minister, the 10 billion dollar export target for the current financial year is nowhere in sight. Perhaps realising the doomsday, the Commerce Minister has started preparing the nation for the coming shock. He confessed before the newsmen the other day in Islamabad that the target of 10 billion dollar is "getting tougher and tougher to achieve."

Speaking at a news conference last week he regretted that exports in December were low by six per cent as compared to corresponding period last year. The export target for July-December 2000 was set at 5.5 billion but we could hardly touch the figure of 4.5 billion. Thus there was a shortfall of about 1 billion, giving a dismal signal that the full year's target of 10 billion is going to be an impossible feat to accomplish. The first half of the year was reportedly marked by about 6 per cent decline in export earnings for the month of December 2000, which reveals the disturbing aspect that the tempo of growth in exports could not be sustained despite overriding emphasis of the government, especially the Chief Executive, on the task of accelerating the pace of foreign exchange earnings which alone can lead the country towards self-reliance and viable economic recovery.

The reasons for the failure of the Commerce Ministry's strategy to inject the desire vigour into export growth as spelt out in the Trade Policy, were reportedly analysed at the meeting of the Federal Export Promotion Board. Blame was laid on the injurious impact of SR0s Nos. 319,417 and 818 against which the export industries and exporters in general have been agitating for the last few months to no avail. The CBR has refused to budge from its stand to keep intact these SROs without any amendments. One of these SROs was instrumental in the imposition of a high rate of duty at 35 per cent and sales tax at 15 per cent on imported inputs which are used in the manufacture of higher value-added leather goods. Other SROs are said to have prescribed complicated procedures for the refund of sales tax and rebates.

As a result, the exporters have been facing hardships due to liquidity crunch following long delays in the refund of sales tax and duty drawbacks.

Only a week earlier however, in a briefing to the Chief Executive, the Commerce Minister told that export during July-November 2000 has registered 12.5 per cent increase over the corresponding period last year. The Minister as well as the Chairman Export Promotion Board explained the various strategies and measures they had taken to promote export and attain the target of 10 billion dollars. In a similar make believe session a few months back the Chief Executive was so much impressed by the rosy picture painted by the authorities that he, while talking to newsmen after the briefing sounded convinced that country's export could be increased to 14 billion during 2001-2002.

As per realities on the ground the export growth during the current financial year has been disappointing. In order to achieve the annual target of 10 billion dollars, the country needs to raise its exports during the remaining six months by 30 per cent. This is a tough challenge, more so because of the economic recession that has started gaining ground in the US market. However, the new strength which the Euro seems to have attained in the recent months gives ground for hope that what Pakistan stands to lose in the US market because of the recession there would be more than made up in the European markets. But in order to make the most of the European markets, the exporters need to double their efforts in the spheres of production, planning and management, standardization and quality improvement. At the same time, the government needs to create the right kind of environment for the exporters to function without the hassle of being confronted with unnecessary roadblocks in the shape of arbitrarily determined taxes, levies and duties which adversely affect the price competitiveness of many of the export products. Over the years, successive governments in Pakistan have created a complex structure of tax administration made totally incomprehensible by multiple rates and self-contradictory SROs which can be used by the unscrupulous in the CBR to either discourage legitimate economic activity or to favour individuals or groups for a price. The system has created vested interests inside the CBR as well as in the private sector, both of which profit from its continuation. When the interests of the unscrupulous in the CBR are threatened, they come up with the argument that the reforms of the kind needed to have more appropriate tax structure would cause the revenue incomes to fall which would affect the budgetary position forcing the government to borrow and which in turn would result in violation of the IMF conditionality on budgetary deficit.

On the other hand, when the interests of those individuals or groups which profits from this system are threatened they come up with the argument that any rationalization of the system would only discourage economic activity, especially exports which are needed to meet the balance of payments gaps and which otherwise would have to be filled with foreign commercial borrowings at expensive rates. Successive finance ministers, including the present incumbent, have been promising to reform this system by reducing the number of taxes and their rates as well as by making them easier to understand and apply. But to be confronted with the same problem even in the month of January, 2001, is a matter of grave concern. Unless this issue is tackled in the right earnest and urgently, Pakistan's economy would continue to stagnate and the target of 10 billion dollars of exports would continue to elude us, no matter what arrangements are put together on an annual or six monthly basis to overcome the so-called irritants".