PACKAGE OF INCENTIVES FOR EXPORTERS

 

Importers of Pakistani products have to be assured of uninterrupted supply

By SHABBIR H. KAZMI
Nov 05 - 11, 2001

Since the September 11 incident the GoP has been trying to come up with a comprehensive package to arrest potential decline in exports. At the best, all the announcements are indicators of broad policy framework. The same also goes true about the much talked about press briefing by the two ministers, Shaukat Aziz and Razzak Dawood. The commitment that duty drawback claims, amounting to over Rs 12 billion, would be paid expeditiously is not an incentive. It is simply implementation of an agreed policy. The delay in reduction of duty draw-back rates can be termed an incentive, at the best.

Efforts of the central bank to reduce average lending and export refinance rates are commendable. With the promised influx of foreign exchange and higher remittances, the central bank has been able to ease its monetary policy. The reduction in volatility of exchange rate has also made the central bank's job easier. However, any substantial increase in private sector borrowing may not be visible for some time, simply because of an overall slow down of national economy as well as economies of Pakistan's major trading partners.

The GoP has been able to achieve two landmarks: 1) convincing the European Union to reduce duties on made in Pakistan products and to enhance textile quota ceilings and 2) negotiating with leading insurance companies to reduce war risk insurance premium. While the first act would increase the market access, the second would help in eliminating the negative perception about Pakistan. The above mentioned measures are expected to ensure greater market access and help in optimizing cost of made in Pakistan products.

There is a overwhelming concern that inflow of foreign exchange into Pakistan has increased but for ongoing growth the country must take aggressive steps to arrest decline in export earnings. The GoP is addressing the issue which has already yielded decrease in duties and increase in textile quota ceilings. As regards fears of interruption in supplies and hike in costs, after the recent visit of Lloyds and other under writers, reduction in war risk insurance is expected.

The inflow of foreign exchange into Pakistan mainly comprise of export earnings as well as assistance from international financial institutions. Even though, fresh aid and loans and rescheduling are expected to improve overall forex reserve situation, unless decline in export is averted Pakistan's woes will not be over. Though, the export figure for the first quarter shows an improvement over the corresponding period of last year, it is below the target. The proceeds for second quarter are feared take the toll.

Some analysts are of the opinion that the GoP has fixed an ambitious target and did not take into account slowdown in Pakistan's key markets. After the September 11 incident many countries have plunged into deeper recession and adversely affected Pakistan's exports. Another reason being many buyers believe that Pakistan falls in the war zone and export shipments would be delayed.

Analysts believe that the perception about Pakistan is grossly incorrect. Firstly, it is Afghanistan which is under air attacks of allies and not Pakistan. Economic activities in the country are going on 'as usual'. It is also a record that Pakistan's exports were least affected when a war was fought in Afghanistan for over a decade in the past. Even at present work at Pakistan's seaports is not affected. The recent invitation of the GoP to Lloyds and other insurance underwriters to see with their own eyes the level of economic activities in the country is expected to result in substantial reduction in war risk insurance.

In the prevailing conditions exporters do not expect visit by foreign buyers. Therefore, Export Promotion Bureau (EPB) should arrange visit of Pakistani exporters to the key markets. Delegations must first of all go to the key markets and subsequently to explore market in other countries.

Efforts must also be made to solicit orders from international aid agencies for the items being procured for Afghan refugees. Some of the products are: wheat, flour and other food items, medicines and tents. Most of these items are available and have the potential to earn foreign exchange for the country.

It is also necessary for the local manufacturers to improve production and productivity to achieve cost competitiveness. Though, economists forecast for hike in inflation rate, reduction in prime interest rate and POL prices is expected to help in containing cost pushed inflation in the country.

MAJOR EXPORTS FROM PAKISTAN

(Million Dollars)

Commodity

Jul-Sep 2001

Jul-Sep 2000

Cotton yarn

243

254

Fabrics

238

255

Garments

223

215

Knitwear

243

251

Bedware

216

178

Synthetics

109

134

Rice

101

110

Leather

58

50

Leather garments

111

113

Others

137

86