Unending export freefall With an 8.2pc decline in the first two months (July-August) of the new fiscal year, the export downfall has continued unabated for a few years now.
The last fiscal year ending June 30 concluded with $20.8bn export earnings against $23.9bn at the end of 2015 and $25.11bn in 2014 — the first full-year of the present government. The country has been missing government-set export targets all these years.
Theoretically, a host of internal and external factors such as a continuous global recession, high cost doing business, competitiveness, inefficiency of the industrial sector and unreliable energy supplies may have contributed to this crisis-like situation, but the right policy response has been missing.
For the first time in these years the Monetary and Fiscal Policy Coordination Board — a forum of the federal government, the central bank and a couple of private experts — expressed “concern on the falling exports” and observed that competitiveness was “also one of the reasons for export decline”.
Finance Minister Ishaq Dar was officially quoted as absolving himself of the problem, claiming the government had already initiated a number of measures for export enhancement. “There is no load shedding for the industrial sector. The tariffs have been slashed”, he asserted.
In the same breadth, however, the most powerful minister in the federal government also felt the need for a multi-pronged approach at the federal, provincial and local level to look into the competitiveness aspect with regular meetings of the cabinet’s sub-committee on production and exports.
The very fact the finance ministry officially shared the board’s concern with the public over the export crisis meant the government was now feeling the undeniable pain of the fall in export earnings contributing significantly to the current account deficit
Dr Ashfaque Hassan Khan, the former economic adviser to the federal government and now Dean of the National University of Science and Technology’s business school, however, held the government responsible for the loss of export competitiveness. “When you collect around a trillion rupees from oil and gas — almost one-third of total tax collection — a year, you have effectively eroded the competitiveness of the industry. You have increased the cost of doing business”, he said.
A participant of the Monetary and Fiscal Policy Coordination Board conceded the exchange rate, artificially kept on the higher side, was another factor affecting Pakistan’s export competitiveness when compared with regional peers like India, Bangladesh and Sri Lanka. He said the Pakistani rupee was overvalued to the extent of 20pc according to IMF standards. The high energy costs and erratic supplies remain a source of problem.
He further stated that the very fact the finance ministry officially shared the board’s concern with the public over the export crisis meant the government was now feeling the undeniable pain of the fall, because, clearly, the share of export earnings in the country’s foreign exchange reserves is declining and contributing significantly to the current account deficit.
The trade deficit at the end of the fiscal year ending June 30 expanded to about $24bn, as full year imports amounted to $44.8bn against $20.8bn of exports. The trade gap in the first two months of the current year stood at $4.75bn — maintaining the same trend — showing a more than 27pc growth over the same period in 2015.
The ministry of commerce has been sensitising the prime minister for reducing the cost of doing business to extend a helping hand to export sectors through the supply of energy at comparative prices vis-a-vis regional peers and removing the effects of non-refundable taxes, like GIDC and GST, on import of machinery.
An overview of the trade number for the first two months of the current year indicates a widespread decline both in terms of export values and quantities. Among the list of about 65 exportable items, about 47 items declined or stagnated. Food exports dropped by 23pc in the first two months and were led by sugar, rice and vegetables.
Textile sector exports fell by about 2.6pc in dollar value. Petroleum Group exports dropped over 68pc while other manufacturing sector exports fell by 14pc. Leather, surgical and engineering items were no exception.
A major factor for the decline in exports could be found due to too much concentration being given to the textile and clothing sector, accounting for almost 50pc of total exports. The government policy of securing savings in the power sector by closing down power plants in the first two years of its tenure also played a role. The data suggested that the full impact of the improved energy supply provided to the manufacturing sector for almost a year now, has yet to show results.
As it happens, the key stakeholders — ministry of finance and commerce — seem to be on different pages. Most of the initiatives announced in different trade policies have remained unimplemented as the finance ministry seems fatigued by the misuse of repeated subsidies and their misuse. A strategic trade policy regime prepared by the commerce ministry for a period of three years (2015-18) could also not be implemented.
This is also evident from the fact that the creation of the EXIM Bank of Pakistan (EBP) for financing exports, which has been part of all trade policies for more than a decade, has yet to be operationalised.
Only last week, Finance Minister Dar presided over a huddle to activate the EBP which was incorporated with the Securities and Exchange Commission of Pakistan in June 2015, under the 1984 Companies Act.
The EBP, on papers, will have an authorised capital of Rs100bn, with initial paid-up capital of Rs10bn, for which the government has so far released Rs7bn. The remaining Rs3bn, along with the selection of chief executive officer, company secretary and deputation of some officers from the State Bank of Pakistan for three years, may materialise during the current fiscal year.