FINANCIAL INCENTIVES TO BOOST EXPORTS
The real issues are avoiding cancellation of orders, ensuring timely shipments and maintaining competitiveness in the global markets.
By SHABBIR H. KAZMI
Oct 08 - 14, 2001
The GoP had set an ambitious export target of over US$ 10 billion for the current financial year and also offered various financial incentives to achieve the target. However, the September 11 incident has caused serious economic problems in countries which are Pakistan's major buyers. Pakistani exporters face two key issues: 1) cancellation of orders and/or requests to withhold shipments and 2) hike in cost of transportation. Both the factors lead to piling up of inventories. While the central bank has offered more financial incentives, the GoP has to make special efforts to avoid cancellation of export orders and ensuring timely shipment.
These measures include: cut in rate of Export Refinance, retention of 50 per cent of additional earnings in foreign currency accounts, enhancement of period for repatriation of export proceeds and withdrawal of F. E. Circular No. 12 of 2000. A new Foreign Currency Export Financing Facility has been introduced to enable the exporters to have access to the credit in foreign currency for pre-shipment and post-shipment. Small and medium exporters can now obtain financing from the banks under the Export Finance Scheme without providing collateral, if they obtain pre-shipment cover under the Pakistan Export Finance Guarantee Agency. This cover would serve as collateral for banks.
The new incentives will enable the local manufacturers to continue production and also to pile up inventories. The expectations are that with the passage of time normal trade activities will resume and exporters will be able to meet the outstanding orders at a swift pace. At the same time it is assumed that exporters will be able to locate new buyers in other markets and continue production activities.
However, analysts are against piling up of inventories. They say that the product preference and specifications of the US buyers are very different from the specifications of other countries. Therefore, it will be difficult to sell such products to other countries. The largest percentage of Pakistan's export comprise of textiles and clothing. This include yarn and grey cloth (both woven and knitted). A large percentage of Pakistani yarn and cloth is used by the overseas buyers to produce made-ups for the US and European markets.
A serious issue is that the US market was already facing recessional trend which was also affecting economies of many other countries. The attacks on the US has not only caused huge losses to the country but pushed the unemployment rate. This is bound to affect the purchasing power of a large percentage of the US population, a society which is consumption oriented. Though, the US government promises to bring the country out of the crises expeditiously, it may take a long time to bring the economic activities back to normal.
Under the prevailing situation the attitude of foreign buyers is not extra-ordinary. However, analysts strongly believe that overseas buyers have either cancelled their orders or have requested for withholding shipments due to the grave economic issues faced in their respective countries. Some analysts even go to the extent of saying that it is the clear indication of the disgust of the US and EU buyers against Pakistan. Unfortunately, the western media has been responsible for creating the situation.
The expectations were that the US and the EU would ease the quota restrictions and also reduce duties on made in Pakistan products. No formal announcement has been made as yet. Analysts still hope that such announcements will be made shortly. However, analysts believe that even if Pakistan is given extra leverage, unless there is a change in perception of buyers about Pakistan flow of products at a higher pace cannot be guaranteed.
These analysts say that western media has tarnished Pakistan image. Therefore, it is the responsibility of the respective governments to improve Pakistan's image, it is not asking for too much. Though, it is said and believed that media in the west is independent, it is also true that media pursue government policies for achieving national objectives. Therefore, the GoP must convince the allies to change sentiments towards Pakistan through the same media which had created bias against Pakistan.