Dec 24 - 30, 2012
Pakistan's trade deficit during first five month (July-November) of current fiscal year 2012-13 has significantly shrunk by almost ten per cent i.e. US $ 8.168 billion from US$ 9.069 of same period in the preceding year primarily due to healthy growth in country's exports mainly exporting food products and decline in imports. Country has recently witnessed a significant increase in exports as a result of rapid improvement in the international trading environment whereas government is also trying to negotiate several bilateral trade agreements with neighboring, regional and friendly countries. However, despite government's serious efforts, the volume of Pakistan's trade is not up to the mark. The last half of current fiscal year is about to start, in which Pakistan has to make a number of foreign currency payments that will put pressure on economy and there is a strong likelihood that existing trend might not continue. The foreign currency reserves of State Bank of Pakistan (SBP) are also on the decline, which could bring threat to the needs of funds for import and export purposes. The foreign direct investment (FDI) has been dropped to drastic level due to unstable economic conditions besides some poor policies in macro financial sector.
In comparison, Pakistan's trade deficit in fiscal year 2011-12, crossed its annual target, which Ministry of Commerce held international economic situation and huge oil import bill responsible for the widening trade deficit of the country. Pakistan's trade deficit was recorded at $21 billion during the previous financial year (July2011-June2012) against government-estimated target of around $14 billion. The deficit of FY 2011-12 was almost 36 per cent more than the trade deficit of FY 2010-11, which was $15.6 billion. Moreover, country's exports recorded negative growth of over four per cent during the previous financial year. On the other hand, country's imports had increased by 11.13 per cent in one year, as it was recorded at $44.9 billion in FY 2011-12 against $40.4 billion of FY 2010-11.
On one side, Euro Zone was and still in crisis, international oil prices were on rise, and on other prices of exportable goods i.e. textile commodities had decreased in international market, which reduced the country's exports level.
Pakistan's exports have increased approxi 7 per cent per annum in three decades from 1990 to 2010; country's exports were at $6 billion, $10 billion and $24 billion in 1990, 2000 and 2010 respectively. However, exports have dropped from 16 per cent of the GDP in 1990 to 14 per cent of GDP in 2010, which does not give a positive picture of overall state of economy. While comparing Pakistan's export performance with the regional countries like India and Bangladesh, Pakistan managed only a 4 folds increase whereas India and Bangladesh increased exports 17 and 10 folds respectively though both these counties also faced similar socio-economic challenges yet managed to increase their export businesses.
By the middle of 2006, Pakistan was viewed as being among the few Asian countries with the most favorable growth prospects, we have subsequently witnessed significant decline in the economic performance due to various mutually exclusive issues and events. Various factors for the decline in exports over the time can be identified but one of the key factors in last 5 years is severe shortage of energy (electricity and gas). Energy shortage has crushed the momentum of economic growth which was built in 2003 to 2005; and there is a strong likelihood that the current energy shortage will continue for few more years. Due to high cost of generation, prices of exportable goods are comparatively high and thus get less preference from the international traders.
The opportunities and challenges of international trade have always been an issue of major concern for the economists and policy makers of Pakistan. As far as the challenges facing the international trade are concerned, they vary with the economic and social scenarios of the importing countries keeping in view the cross border trade. As a matter of fact, Pakistan should try to focus on the efficient utilization of the opportunities derived from exchange of goods and services with its trading partners and to utilize the benefits of the open market economy is yet another major challenge for Pakistan.
Pakistan has a very few Free Trade Agreements (FTAs) with trading partners, which provides the private sector greater access to other countries and regions. For the last two decades, nearly 20 FTAs are signed globally. To date, Pakistani private sector has access to only four and utilization has remained fairly poor. For example, South Asian Free Trade Area (SAFTA) agreement was signed in 1994 but we have only a 10 per cent share of total trade, while 90 per cent is split equally between India and Bangladesh.
Aside from issues relating to the commercial environment, a second key policy question is how can Pakistan identify and encourage potentially successful new export ventures. There are several approaches that might provide useful information. The first, and which is being adopted by the World Bank in Africa, involves surveys of individuals and commercial enterprises engaged in various export activities to identify new products that might be traded successfully. The second involves a case study approach. UNCTAD calculates and publishes aggregate indices of export concentration for developed and developing countries, on an annual basis. By using this data, Pakistan can diversify and identify areas where it can concentrate more and can get positive results. Leading economists often advise to avoid a concentration of exports in a narrow range of similar goods that may be negatively affected by new more efficient competitors, by the development of substitutes, or by factors adversely affecting demand. Despite the fact that Pakistan has a mix of exportable products ranges from low-skill labor intensive goods to high-technology good (fighter planes, arms and ammunition). Yet, like many other under-developed countries, Pakistan's exports are highly concentrated on agri and textile related products. A thorough analysis of past changes in the exports of countries that successfully diversified could help identify the types of products. In other words, this information could, on the basis of other countries' experience, help Pakistan differentiate between potentially successful, and probably unsuccessful new export ventures.
Small and Medium Enterprises (SME) importance is now accepted worldwide, but the situation is different in Pakistan. According to the one of Asian development bank reports, SMEs in Pakistan are contributing in terms of value added 30 per cent and 80 per cent employment in industrial sector. SME sector was neglected though some efforts have been made for the improvement yet more endeavors are required so that SMEs of Pakistan can contribute meaningfully in the growth of the economy.
Besides energy shortfall, one of the biggest current challenges of Pakistan is lack of interest in investing in Pakistan by international players whereas local companies are facing difficulty in raising debt for their infrastructure projects in Pakistan from the international market. In this situation, a concentrated effort on SME can help the country and once the economic cycle starts it will have a snow ball effect and steadily Pakistan will come out of the present situation.
Export trade largely meets foreign exchange gap hence export growth would increase the import capacity of Pakistan that, in turn, would increase the industrialization, as well as the overall economic activities. Pakistan's import needs are substantial; thus the need to rapidly increase the exports is immediate. In order to finance the imports and also to reduce the country's dependence on foreign aid, the Government of Pakistan has been trying to enhance foreign exchange earnings through planned and increased exports. However, the global trade scenario has exposed structural limitations on the economy, posing a variety of challenges for the country that has underdeveloped technology and a low capital base. Pakistan immediately needs to make a short, medium and long term synchronized strategy for increasing exports not only in absolute terms but also in terms of ratio to GDP.