IS $18.6 BILLION EXPORT TARGET ACHIEVABLE?
However, the government's economic managers have been showing satisfaction that the current figures were manageable by borrowing from abroad, remittances, drawing down reserves and inflow of investment.
SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
July 24 - 30, 2006
The trade policy announced by the Commerce Minister last week envisages an export target of $ 18.6 billion for the financial year 2006-7. The Commerce Minister had originally proposed a target of $ 17.5 billion (showing an increase of about 8% over the previous year) in the draft policy placed before the Cabinet a few days earlier for approval. Chairing the meeting, Prime Minister Shaukat Aziz rejected the figure and directed the officials to fix a reasonable export target for the year 2006-07, which was worked out at $ 18.6 billion.
According to sources, the Prime Minister was disturbed over Commerce Ministry's export estimates and visibly expressed it during a meeting held a day earlier to give him a presentation on the upcoming trade policy to be announced later. The Prime Minister asked the Commerce Ministry's officials on what basis they were projecting only 8% increase in exports for 2006-07 when all other economic indicators were showing healthy trend. He counted overall economic growth, increase in remittances, and FDI, enhanced revenue target and several other factors. He said that the Ministry should take into account all these factors before finalizing the exports target for the current fiscal year.
One can understand the concern of the Prime Minister for an enhanced and an impressive figure, but it is neither here nor there. It is only his wish having no bearing on ground realities. For the outgoing financial year (2005-06) an export target of $ 17 billion was fixed which could not be achieved despite all the tall claims by the government, thus we ended the year with $ 16.4 billion, missing the target by $ 600 million.
As against this decline in exports the imports have registered an unprecedented increase of over $ 8 billion over the target of $ 20 billion during the outgoing financial year, resulting in a highest ever trade deficit of about $ 11 billion. Independent economists have been warning the government for the past many months about the growing and unmanageable trade deficit and urging the government to focus attention on boosting exports through diversification and exploring new market. But nothing happened.
As against the revised export target of $ 18.6 billion for the financial year 2006-07 against estimated imports of $ 28 billion, a trade deficit of $ 9.4 billion has been projected. Last year we ended up with a deficit of about $ 11 billion against 6 billion as projected in the last year's trade policy. God forbid if the same performance is repeated this year what would happen to country's foreign exchange reserves.
The deficit reflects the impact of high international oil prices and rising imports of industrial and office machinery as well as automobiles and a variety of raw materials for making consumer and capital goods. There is also a close link between the trade deficit and the state of the economy. In times of economic growth, there is a relatively high level of demand, some of which will be the demand of goods from abroad.
However, the economic managers of the government have been showing satisfaction that the current figures were manageable by borrowing from abroad, remittances, drawing down reserves and inflow of investment. Director Pakistan Institute of Development Economics (PIDE) Dr. A.R. Kemal had also endorsed the idea that the current account deficit was manageable despite a soaring figure. He said that Pakistan's financial account was already in surplus. However, to finance the current account deficit, which is currently above $ 3 billion, the government could bridge the gap through high remittances inflow, take loan and draw down its reserves.
The widening trade deficit would also hurt the country's reserves, which the State Bank of Pakistan (SBP) in its recently issued monetary policy statement for January-June 2006, has showed concern over the exceptional growth in the trade deficit saying that is has impacted the foreign asset position.
Independent economists are of the opinion that any significant cut in the import bills is not possible in the near future as imports largely comprise raw material and machinery, petroleum products and essential food items like meat, wheat and sugar. In their opinion it is the export sector, which requires more focused attention.
Pakistan has a great potential to increase its exports especially in the agriculture and IT sectors. It, however, needs to export finished and value added goods rather than sending abroad raw material. That the country has been able to achieve the 16.4 billion dollar export target is certainly a positive development in the backdrop of the 10 billion dollar barrier that had haunted the nation for long years. The import target of 28 billion dollars, however, focuses the imbalance in the Trade Policy, which is close to the total foreign exchange reserves. Remittances, foreign debts and privatisation proceed may be a temporary cushion, but it's too fragile to withstand the international fiscal pressures owing to the widening trade gap. There is, therefore, urgent need to boost exports. The 13 percent increase in the target is certainly not ambitious. The positive aspect of the new Trade Policy, however, is its diversification strategy in exportable items as well as the export zone. The stress on the agro based non-traditional items and focus of export on the regional Muslim countries, particularly Iran, Afghanistan and CARS is the right approach to increase the exports.
The new trade policy also lays emphasis on the meat and poultry exports for which special zones will be set up in six cities to cater to the market of Halal products in the Middle East and elsewhere in the Muslim world, which should help meet the export target. Attention on the carpet exports as well as improvement of quality, design and colours and increase in its production will also hopefully contribute towards achievement of the export targets. The setting up of the Trade Development Authority will also give new boost to the export sector. It is, however, important that there should be a check on the imports to reduce the imbalance in foreign trade. Besides, the import of luxury items such as costly vehicles and other electronic gadgets should be halted.