Once again we have arrived at the same impasse. The path ends in a dead end. On both sides, and in front of us there seems to be an impenetrable wall which seems impassable and therefore there is no option but to turn back and give up the attempt to find a path out of our difficulties.
It’s the same familiar territory, a brief period of hope and growth in the economy; a hope that we will spark off a higher growth path and then the impenetrable wall of foreign exchange deficits. The growth sparks off huge imports, the foreign exchange reserves dwindle, the current account deficit widens and we are again forced to clamp down, raise interest rates, impose import controls and slide back into poverty.
This time, however there is a difference, there may be a way out of the cul-de-sac. The path may be steep and perilous to start with but could lead us quickly out of our mire of poverty onto a plateau of self-sustaining growth. The ravages of Covid have brought about changes in the world’s trading patterns and in the mindset of the major players.
The first big change is that we are one of the very few countries left with a sizeable base line exporting industry which has not been crippled by Covid. The other South Asian countries, especially India, have suffered serious damage due to the pandemic, and they are unable to operate their factories at full capacity. We have managed Covid better and therefore our industry is largely intact.
Many units have modernized and retooled their facilities with the help of cheap loans funded by the State Bank and are in better shape than they were ever before.
The floating exchange rate has helped exporters to quote better prices and that has helped tremendously. We are probably the cheapest source of base textiles, leather goods, sports and surgical goods in the world. India and Bangladesh are certainly pricier. China has been put in a box by the West due to political and social lapses, like the Xinjiang factor.
So by default we are the front runner in the field!
A number of psychological factors have also helped. Previously, we were vilified as a country too dangerous to travel to and stay in. We were a terrorist state wrecked by bomb blasts and terrorist attacks. So the big retail store buyers pointedly cut their buying from Pakistan. Their executives would much prefer a week in India, Sri Lanka, Bangladesh or Vietnam than in our country. Now there is no travel left and decisions have to be taken on the basis of offers received through the mail. So our offers stand a better chance.
The label of terrorist state is also fading after the end of the Afghan War. The blame being heaped on us for our association with terrorist organizations is diminishing as other hot spots emerge. Mercifully, very few of the recent terror attacks had Pakistani origins.
The recent spurt in exports is not just a flash in the pan; we are regaining our share of the world trade. If we do not hobble our exporting industry now it could go on growing for a few years. If we actually follow a positive export promotion policy we may soon get to add another 10/15 billion dollars a year just to our manufactured exports in the next two years. The potential in the agricultural sector is equally large as we have seldom allowed our farmers to find their place in the world market.
A realistic exchange rate policy, combined with a helpful export policy followed by our government will open the flood gates for our farmers and the food processing industry. We sit on the doorstep of the biggest food importers of the world, the Arabian peninsula. They import food from all over the world at high prices, but not from us. The fault is ours. We have discouraged the export of agricultural products in the belief that such exports will make food items more expensive in our own country.
The anti-export lobby has stock answers.
“Where is the export surplus?” they ask. As if we have to produce tons of tomatoes first, pile them up at the port and then go looking for customers. Or produce a million footballs and then look for contracts. Producers will step up production when they have an assured demand for their products.
Exports of our textile, leather and sports goods have not made domestic availability expensive. On the contrary as the manufacturers compete in the world they learn better techniques, reap economies of scale and make better products at lower costs. Our own consumer benefits from all this. An active export policy sparks off investment in productive farms and factories rather than glitzy plazas and luxury flats.
No doubt the imports have grown even more than and the current account deficit is not sustainable even with the IMF dollops. There is a huge increase in the world prices of commodities and hence the higher bills for fuel, cotton and edibles. The splurge on machinery and the pent up demand for cars has also fueled the surge. Yet these imports should have been curbed by added duties and even higher exchange rates.
In fact now is the time to hold one’s nerve and really let the currency float to its market determined rates. If that means a further depreciation of the rupee so be it.
The higher rates will curb imports automatically, make exports of goods and services more profitable, and lure in more funds from our overseas residents into investments in Pakistan. The last surge of devaluation has already demonstrated the market forces it unleashes do work. It caused the surge in exports and remittances that we are gloating over.
The government is jittery due to the price spiral unleashed by their policies. They should have planned for it earlier. There are simple solutions like foregoing tax on edibles, subsidizing the price of wheat to supply cheap wheat flour to the urban areas. There is already a heavy subsidy on fertilizers.
If sugar and rice become pricier so be it. The compensation shall be more jobs in the towns and better incomes for the farmers. Once our farmers are able to sell their fruits and vegetables to the Middle Eastern markets at their prices, exports will really boom and bring sustainable growth to the whole country.
Copyright Business Recorder, 2022
The writer is also the current Chairman of the Towel Manufacturers Association of Pakistan
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