Jan 9 - 15, 2012
Chronic large budget deficits and overreliance on external borrowings in recent years made the economy vulnerable to the financial crisis and probable recession, which requires a recovery program.
In the wake of high and continuous rising oil prices, economic developments and macroeconomic policy issues for countries like Pakistan have increasingly attracted attention globally.
Exports of Pakistan can play a crucial role in the revenue generation where access to the global market can further allow Pakistan to generate more funds.
Trade deficit both in terms of volume and percentage is continuously increasing month by month which is a very dangerous trend for an economy like Pakistan and the policy makers and economists are needed to take steps for corrective measures.
Pakistan's international trade has an inherent problem of high cost of production, which reduces the demand for its products.
High cost of production is due to high cost of electricity, which is primarily generated on imported furnace oil.
Pakistan's failure to explore and exploit its own oil and gas resources to its full capacity has led to the imports of expensive oil.
By 2012, experts forecast that oil imports will rise to $15 billion. Exports are a source of foreign exchange earnings. Higher exports enable Pakistan to meet its growth and development needs through import of capital goods and oil.
Pakistan is the world's fifth largest exporter of rice and competes with the production of Vietnam, India, Thailand, and Bangladesh. Rice is Pakistan's third biggest crop after wheat and cotton, and accounts for about eight percent of total exports. Pakistani basmati goes mainly to the Middle East, Europe and the United States whereas non-basmati is sold all over the world. It contributes about 1.6 percent to the country's gross domestic product.
It is expected that the country will have a bumper rice crop of about 6.5 million tons in FY12. Massive floods of 2010 and 2011 badly affected the rice crop in the past. Consequently, rice exports fell to about 3.7 million tons in FY11 from 4.6 million in FY10. Pakistan is likely to export up to 4.5 million tons of rice in FY12.
After keeping the stock for internal consumption which is around 2.3 million tons and with the carryover stock of around one million tons, the country will be in a position to export approximately 60 per cent of its stock i.e. four million tons this year.
Pakistan is Asia's third-largest wheat producer. It had a wheat export target of two million tons but managed to export 1.8 million tons last year.
Most of the wheat producing countries, including Pakistan, have a bumper crop this year. Pakistan started wheat exports in FY12 with a high note and fetched price around $345 per ton but ended up at $305 per ton. That was mainly because of Russia, which had huge exportable surplus and was aggressively exporting wheat at much lower prices even at an extreme low price of $226 per ton. There was a ban in Russia to export wheat due to drought last year but now they have opened their doors.
Wheat prices in the domestic market till July/August remained on higher side but with the entry of Russia in the world market, a declining trend was witnessed.
Demand for Pakistani wheat in the world market is still there but wheat exporters in Pakistan feel that it is not viable to compete with the others in the international market because of higher price as compared to the low price offered by Russia in particular. The country's existing wheat stock is around 27 million tons. Exporters are expecting that government should come up with some scheme to help exporters so that the country could export around three to four million tons after meeting its domestic consumption demand.
Anyhow, wheat exporters have managed to capture new markets and much of the quantity is shipped to East African, Middle East and Far East countries. In addition, it is also estimated that annually around 20 to 22 percent of wheat crop is damaged in the absence of proper storage system for such an essential food grain. We can increase our exports, if we are able to reduce this loss.
Share of textile products in the export basket is substantial. Pakistan is the world's 8th largest exporter of textile products. The contribution of this industry to the total GDP is 8.5 per cent whereas it provides employment to over 20 million people. Textile sector contributes maximum to the national exchequer and has a positive outlook in FY12.
The sector performed well due to unprecedented hike in the international cotton prices despite the fact that it is suffering from electricity and gas shortages. Cotton crop, the raw material of the textile product, suffered a lot during twp floods. Even then, the country has sufficient cotton to meet the export demands. Cotton prices started rising sharply in October 2010 and touched a 150-year record level in February 2011.
Textile manufacturing witnessed a growth of almost 11 percent in second half of 2011 and the country earned a record $13.8 billion of foreign exchange through textile exports. Manufacturers are facing difficulty in maintaining their international market shares. Pakistan has lost its share in US market against India in bed wear category as buyers switched to import high-end products. Bangladeshi textile products are comparatively cheap as they have duty free access to the European Union under Everything but Arms (EBA) scheme. It has also vetoed Pakistan's entrance. Pakistan is losing its share against low cost Bangladesh, India, and China.
The exports of sports goods from the country have registered a decrease of around 0.56 percent during the last six months of the current financial year.
According to the government data, sports goods including footballs, gloves and other products worth $17 million were exported during the period from July 2011 to November 2011.
There was an increase of 10.87 per cent in football exports and drop of 9.28 percent in gloves due to competition from China. However, there is a significant increase in exports of leather footwear by 31 percent while on the other hand exports of canvas footwear declined by 35 percent. The exports of surgical goods and medicinal instruments increased 19.30 per cent and that of engineering goods 45.95 per cent. Pakistani carpets compete with those from China, Turkey, and Afghanistan in the international market. According to figures released by the commerce ministry, the exports of carpets rose 4.21 per cent during the first five months of the current fiscal year.
As per the data released by the state bank of Pakistan, the country's stakes in bilateral trade with India have been declining for the last three years and balance of trade is heavily in favor of India.
Pakistan and India have agreed to work jointly to double their bilateral trade from the current $2.7 billion to around $6 billion per annum within three years time. However, the trend of trade between the two countries shows that India has successfully increased exports, but Pakistan has not been able to match its performance. Exports to China have also increased by nearly $500 million and overall growth rate is 38 percent.
The export performance is also indicative of product diversification taking place in export goods basket. The government projected an export target of $10 billion for traditional products in the budget 2011-12. Demand for traditional products in other markets brightened prospects of increase in exports.
Traditional markets of the US and EU remain static or are slowing down. New markets are emerging, which can give a new dimension to the exports.
In recent months, robust growth can be seen in exports to Africa, Asia, and Russia. It is important for the exporters to explore new venues, and add innovative and value-added products. With the emergence of Asia and Africa as economic centers, there can be greater demand for Pakistani goods. Moreover, the country can have fewer non-tariff barriers in Africa as compared to other developed markets.