Trade data

According to the latest trade data released by the Pakistan Bureau of Statistics (PBS), exports declined in November 2019 in comparison to October 2019 by negative 1.04 percent in rupees terms and negative 0.64 percent in dollar terms. This decline in exports must be a source of serious concern to the cabinet and particularly for the Prime Minister and his economic team which may necessitate fiscal and monetary policy adjustments.

Imports declined by 3.63 percent in November compared to October in rupees terms and by 3.29 percent in dollars terms. In other words, the decline in imports continues and is the main driver behind a declining trade deficit. The decline in imports of raw materials and semi-finished products, ignored by the economic team leaders, is constraining industrial productivity with a consequent negative impact on employment and poverty levels and inflation.

Prime Minister Imran Khan's economic team has rightly convinced him that the monetary and fiscal policies are responsible for the decline in the trade deficit by 33 percent in dollar terms, thereby strengthening the reserve position, while reducing it roughly by half in rupee terms (17.4 percent). The question is whether the current state of the economy merits a continuation of the existing monetary and fiscal policies.

Recent statements by Razzak Dawood, the Advisor to the Prime Minister on Commerce, Industry, and Textiles in particular indicate that the focus would now be on formulating a policy to increase exports/output through offering lucrative incentives to industrialists and businessmen. Iqbal Munir of the Federal Board of Revenue stated last month that five export promotion schemes have been fully automated, including Manufacturing Bonds Scheme, Export-Oriented Schemes, Duty and Tax Remission for Exports Scheme, Temporary Importation Scheme (TIS) and Export Processing Zones, adding that "the benefits include exemption of duties and taxes on all the imported goods including raw material to machinery and capital goods."

However, the private sector complains of utility rates higher than the regional average, transport costs in rupee terms higher than their competitors in other countries due to an undervalued rupee to the tune of over 5.5 percent and even though refunds of 32 billion rupees have been recently cleared concerns about prompt refund payments persist given the rise in the budget deficit due to lower than budgeted revenue target.

It is pertinent to point out here that there are five countries that have exports below the level of 10 percent of their GDP and Pakistan, sadly, is one of them. The other four are Afghanistan, Yemen, Sudan and South Sudan. This indeed is shocking and is the result of years of fiscal and monetary policies that neglected industry and promoted a culture of imports as against exports that led to de-industrialisation. It is well known that because of these flawed policies investors moved away from industry and concentrated on trading/provision of services and real estate. It is about time our policymakers focused on factors that are impeding industrialisation, growth in exports and also initiated policies for increasing domestic productivity and export diversity.