As worrisome as the current account deficit situation is, it is about to get worst. Not only because the import bill is about to increase, courtesy currency devaluation and rising oil prices, but also because exports have a rather falling trend.
On a year-on-year basis, exports witnessed a 14 percent increase for 10MFY18. On a month-on-month basis however, exports declined by almost $100 million from March to April. A linear forecast trend line predicts lower increases in exports in the next few months, almost touching 0 percent hence indicating stagnation.
Efforts to revive exports, including the Rs.180 package and currency devaluation do not seem to have a sustainable impact. On average, exports grew by 3 percent on a month-on-month basis over 10MFY18, a number too small to make inroads to decrease the staggering $1.96 billion CAD, which reached 7.9 percent of the GDP in April 2018.
The spikes in percentage increase in exports on a monthly basis were driven by food and textile categories. Food exports rose due to wheat and sugar subsidies and the opportunity to increase EU market share for rice since Indian rice exports were banned. Textile sector was propped up by a better energy situation and the export promotion package.
None of these factors can sustain exports in the long term. Subsidies put pressure on a beleaguered budget, rising oil prices will not help the energy situation, and the export promotion package has not resolved the liquidity crisis of the textile sector.
The latest Economic Survey acknowledged that the increase in exports came around on the back of higher global trade and recovery in Pakistan’s markets, rather than efforts of indigenous measures. The document also marked Pakistan’s chronic problem of putting all the eggs in one Pakistan, i.e. lack of diversification in exports products and markets.
To reverse this trend, Pakistan needs to make cataclysmic changes, such as leveraging CPEC to become regionally integrated as part of Global Value Chains (for more information read “Can Pakistan join GVCs?” published on May 16, 2017).
As yet, the government efforts have been more sectors specific that yield dubious short term returns rather than concentrate on the more ambitious but more sustainable beneficial task of fixing the whole trade governance regime. In the absence of structural changes, declining exports seem to be the fate of the country.
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