TRADE POLICY 2008-09
IMPORTS SUBSTITUTES IMPERATIVE TO REDUCE TRADE DEFICIT
July 28 - Aug 03, 2008
This is for the first time that India has been given a special place in Pakistan's Trade Policy 2008-09.
Under this policy, the import of more than 136 new items has been allowed from India . Of these, 72 tariff lines were added to the import list for raw materials, chemicals and industrial inputs, nine tariff lines for pharmaceutical products and vaccines, two for fruit and vegetables, 19 for fertilizer, 32 for machinery and parts and two for POL and diesel.
With the inclusion of these items, the total list of tradable products with India has been increased to 1,938 tariff lines from earlier 1,837. the global import of these 136 tariff lines stood at $2.8 billion of which $2.2 billion was spend on import of POL and diesel.
This means the government has diverted this import value of $2.8 billion to India which will increase its exports to over $3 billion from the current level of $1 billion and become the second largest trading partner of Pakistan after China.
This of course a timely and wise step especially in the face of increasing freight charges and making things more expensive when one imports from distant places. In fact, people of the two neighboring countries have suffered heavily due to politics of hatred unleashed in the two countries by some political quarters that have the only way out to survive in the political area by fanning hatred and mud slinging on each others.
The political issues between the two countries should be addressed through dialogue on one hand while the economic interests of the country and the people should been looked at different forum on the other hand so that at least the people who have suffered a lot during last 60 years could be provided a breathing space by such positive policies.
GOLD-SILVER-GEMS EXEMPTED FROM CUSTOMS DUTY AND SALES TAX
The new trade policy has exempted the imports of gold, silver and gems from customs duty and the sales tax which sounds strange especially in the backdrop of a suspicious history of gold smuggling from Pakistan to India . It is painful to note that India's exports of gold and jewelry imbedded with precious stones accounts much more than $6 billion which carries a huge amount of gold and precious stones smuggled out from Pakistan . Instead of exempted gold or silver from customs duty and the sales tax, the policy makers should have given a relief to POL and power consumers by exempted the sales tax or at least reducing from 16 percent to 5 percent in the current scenario which is disrupting the economics of the common man on one hand and increasing the cost of production by manifold. It seems that the decision to exempt gold, silver and gems has been taken under influence from some strong quarters; otherwise it is not going to promote the exports regime considerably from Pakistan !
MOUNTING INFLATION POISED TO PUSH UP INTEREST RATES
In order to contain inflation persisting around 20 percent the interest rates of the commercial banks are likely to go up following the review of monetary policy by Dr. Shamshad Akthar, governor of SBP, on July 29.
According to financial analysts, in the wake of the recent measures taken by the government for domestic oil price rationing taking the oil price hike 60-75% since March 2008, the inflation would persist in the region of 20 percent in Pakistan which paves the way for the central bank further tightening of the monetary policy by increasing the discount rate by1- 1.5 bpp when the monetary review committee meets on July 29.
The exchange rate deprecation of 17% is the highest in the region and has put Pakistan's exchange rate depreciation at the top of the list among Asian peers on the tightening front.
However, financial analysts feel that inflation has not peaked yet and feared it will remain in the 20% range until December 2008; hence the monetary policy review on July 29 is likely to push up a 50-100bp hike in the discount rate for the banks.
The inflation is likely to go up on the back of rising oil prices domestically and consequently multiplier effects on general prices. The minister for power has already warned for increase in power prices in near future. In this context, Federal Minister for Power and Water Raja Pervez Ashraf has underlined that increase in electricity tariff is inevitable.
"We apologize to the entire nation regarding the difficulties faced by common man due to power crisis", Federal Minister for Power and Water Raja Pervez Ashraf said in a Press briefing.
The government is taking down to earth measures to get rid of load shedding which is further augmenting the miseries of down trodden masses hoping that by the Grace of God we will overcome the crisis by the end of next year.
Raja Pervez Ashraf observed that at the moment on average there is a shortage of some 3500 megawatt and during evenings 4500 respectively. He further said that next month work to generate 50 Megawatt will begin through a Windmill. Ashraf said that today Pakistan is facing great challenges especially in power sector as the shortage of energy was adversely affecting the country's economy. However, Pakistan is focusing on alternative energy projects like wind, solar energy, coal based generation and hydropower, and he pointed. Construction of big dams is also on the cards, Ashraf stressed.
The Karachi Electric Supply Company (KESC) has been directed to improve services and resolve the issue to power break downs and load shedding as early as possible.
In fact, the poor performance of KESC after its privatization seriously affecting the economic performance of this commercial and industrial hub of Pakistan . The power crisis have not only sent a bad message abroad regarding poor infrastructure in Pakistan and causing economic losses, the unpredictable power supplies have shattered the confidence of the people on administration as it seems that the government has left the people at the mercy of the new private management of Karachi electric Supply Company which has miserably failed to cater to the power needs of Karachi.
The rising international oil and food prices are the main factors for widening the trade deficit in Pakistan which is really a matter of concern if not contained effectively. One important way out for reducing the trade deficit is to find ways and means for import substitutes in the energy sector.
It is the time to sink the political differences and allow the government to build high dams for two reasons that are generating cheaper hydro electricity on one hand and have enough sources of water supplies to our agriculture lands. Pakistan has plenty of coal reserves in District Thar this is high time to utilize that available source to steer out the economy out of troubled waters. Development of local oil and gas resources at war footings and accelerate the pace of cross border gas pipeline from Iran with out any further delay. We have already suffered a lot due to political pulls from out side Pakistan against the cross border pipeline which could inject new spirit and fresh blood to our economy. The last but not the least option to reduce the trade deficit on account of expensive imports of oil is to go for nuclear power generation at the massive scale. On one hand the US and other West countries claim that they are allies to Pakistan in the war on extremism and terrorism but they except some cosmetic support they never allowed Pakistan to stand on sound footings in terms of industrial and nuclear developments. Now is the time for every one to think in terms of Pakistan and the betterment of the poor who are increasing in number with every passing day with the deterioration of economic conditions in our country.
DR. SHAMSHAD AKHTAR
It may be mentioned that this forthcoming monetary policy review will be the sixth monetary policy statement before Dr Shamshad Akhtar's first term expires on December 31.
During her three-year term, despite high pressures, she fought inflation mainly by using the tool of a tightened monetary policy which consequently helped increasing the interest rates.
The outstanding services of Dr. Shamshad Akhtar as the government of State Bank of Pakistan have been globally noticed ñ During her first term as the government of the central bank she won the prestigious - "Asia's Best Central Bank Governor" award consecutively in 2007 (awarded by the Emerging Markets Group) and 2008 (The Banker Magazine, Financial Times, London).
The trade policy has set the export target at 22.1 billion dollars for 208-09. This indicates an increase of 15 per cent over the exports receipts of $19 billion of the previous year.
The government aims at encouraging industrialists, investors and traders in the country. Among the measures announced, the minister said that the Export Promotion Bureau will be reconstituted and necessary changes will be introduced in the Trade Development Authority of Pakistan (TDAP). The policy also aims at introducing programs to train the workforce for enhancing the productive capacity of industries.
In order the reduce the cost of doing business, the policy proposes that the imports of plants, machinery and raw materials be made duty free under the Duty and Tax Remission for Exports scheme. In addition, industrial zones will be established in different cities for industrial development and creation of employment opportunities.
It needs to be pointed out that the commerce ministry while framing the trade policy for the current fiscal year has missed out on a number of important issues that need to be addressed.
Pakistani exports are struggling to be competitive given the high rise in the rates of utilities, particularly gas rates. This has crippled not only the textile industry but allied sectors as well. With a rise in power and fuel prices, it is difficult for Pakistani businessmen to compete in the international market. Exporters and business community also complain that the new set up in the finance and commerce ministries has once again reverted to becoming caught up in endless red-tape. It may be mentioned that the recent budget announced had very few of the recommendations made by the chambers from all over the country. Many say that it was not a pro-business budget at all. The bureaucracy has also made its way to organizations like the TDAP which are caught up in minor issues at a time when there should be more proactive thinking and out-of the -box solutions to enhance exports. The idea of non-traditional exports will continue to remain a dream unless actual effort is made to explore new markets and to sell them in a professional manner. Besides, it remains to be seen whether the government will be able to keep imports in check given that 2007-08 saw the country's largest ever trade deficit.
Tariq Sayeed, President SAARC Chamber of Commerce & Industry (SAARC CCI) has hoped that these measures will help implementing of South Asian Free Trade Agreement (SAFTA) in true perspective.
He hailed the decision of the Government to enlarge the list of importable items from India, which at 8-digit level now comprises 1900 items out of total 6700 importable items from all over the world. He said that after the inclusion of 136 items, the trade with India will grow with more pace.
"Although, it may lead to increase trade deficit with India, as a whole would reduce the import bill" said President SAARC CCI negating the opinion that Pakistani markets will be flooded by Indian imported goods in wake of the currently trade policy initiatives adding that we should see the bigger picture. "Import of single item Bio-diesel from India would help reducing import bill by $700 million".
President SAARC said that the promotion of trade with India would ultimately benefit to the region. He admired the decision of allowing manufacturing of CNG Buses by Indian companies in Pakistan and clarified that Government has allowed duty free import of parts to be used in the manufacturing of CNG Buses, which are not manufactured locally, therefore no question of hurting the local manufacturing units arises instead it will promote FDI from India through Joint ventures. Lo-cost manufacturing will also help re-exporting of CNG Buses and help generating employment opportunities as well.
President SAARC also appreciated the provision of duty draw back by 1% for 14 sectors including Gems and Jewelry and exemption of 16% sales tax on Gold, Diamond and Gems and Precious Stones and said that it ill help promoting value addition in these sectors and particularly in Gems and Jewelry and precious stones, Pakistani manufacturers could seek expertise from India to boost the export of valued added items, which is likely to increase from $ 200 million to 1 billion by the end of the current fiscal year. He also hailed the decision regarding DTRE and said the companies working under this scheme will be benefited to import goods for re-export purpose.