IMF explains how country can realise its export potential

ISLAMABAD: The International Monetary Fund (IMF) Resident Representative, Esther Perez Ruiz has said that Pakistan needs proactive policies – exchange rate flexibility, efficient allocation of resources, elimination of untargeted subsidies, and creating a conducive business environment in the country to realise the export potential.

Speaking at the launch, “Trade Connectivity” book with the support of Friedrich Naumann Foundation (FNF) Pakistan by the Economic Advisory Group (EAG) and Policy Research Institute of Market Economy (PRIME), she said that according to her professional and personal experience, trade really makes a difference for people and help the country overcome the external vulnerabilities as that case with her own country.

The IMF resident representative stated that Spain’s integration with the EU in 80s and 90s was a political aspiration for the country, which led to a massive economic transformation and helped overcome external vulnerabilities in that country.

She stated that Pakistan has to yet embrace integration and the matter of fact is that exports to GDP have fallen from 14.5 percent in 1990 to 10.5 in 2000. She said more integration with regional and developed markets is extremely important for Pakistan for technology transfer and to improve competition, to reduce the external vulnerabilities and to increase Pakistan’s per capita GDP growth.

And to realize the export potential, it would be important to remove export bias in tariff policy to increase exports and to adopt proactive policies, efficient allocation of resources, elimination of subsidies and creating a business conducive environment in the country, she added. She said that the IMF is very much working with Pakistan.

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Syed Naveed Qamar, Federal Minister for Commerce, said that he has been a supporter of free trade because it is an ultimate engine of growth by increasing production and thereby, creating employment opportunities. He was of the view that export-led growth is the real aim of Pakistan and free trade will be imperative in this regard.

He said that politics has been the biggest impediment for trade with south and east as sanctions on Iran security situation in Afghanistan are some of the issues. He said that there is a big opportunity for Pakistan in Central Asia whether its electricity or energy route. He said that there is a lot of appetite for Pakistani goods in Central Asian countries. The minister said that he was informed that Pakistan is going to sign a free trade agreement with Turkey most probably soon after Eid.

He said in his opinion, the country was moving away from the direction due to the recent ban on imports and stated that although it was not his prerogative, however, his efforts would be that it should be no longer than the period of (two months) as announced by the finance minister because of being a counterproductive move. The recent import ban was not a well-thought-out initiative taken by the government but it was aimed at temporary restraint of imports.

Moreover, the uncertain political environment in the country has further slowed down economic activity. However, the promotion of exports by tapping into new markets, and increasing the exports’ basket by reducing the trade barriers is the ultimate way forward.

We have to lift the ban soon, he said. He added that the country was expecting a positive outcome from the IMF on the revival of the Extended Fund Facility (EFF) programme. “Pakistan is one of the best performing GSP+ countries. From 1st Jan 2024 new GSP+ program will go in effect,” said the minister adding that Pakistan is the best compliant of conventions and hope to get the new GSP programme for the next 10 years.

Ambassador of the Republic of Indonesia to Pakistan Adam Mulawarman Tugio said that “Trade Connectivity” book is very insightful and comprises pertinent recommendations. Trade between ASEAN and Pakistan is very small as compared to trade of China with ASEAN i.e. $200 billion. There is a lot of potential to be explored through FTAs, he added.

Birgit Lamm, Head of Country Office FNF Pakistan, enunciated that “Pakistan has a huge market with enormous potential for economic growth, but it’s time to translate this potential to action in creating wealth for the country and its citizens”.

Syed Javed Hassan, chairman EAG, expressed his views as “The EAG Book ‘Trade Connectivity’ looks at the practical aspects of trade and why Pakistan urgently needs to enhance connectivity and thereby intra-regional trade, and also become a trading hub for trade beyond the region. Economic growth of nation states is linked to their ability to exploit connectivity and interdependencies within strong regional blocs. EAG Trade Connectivity supports this view with contemporary trade theories by focusing on internal and external economies of scale, and also suggests practical policy measures that maybe taken to bring the ideas into fruition”.

Dr Ali Hasanain, associate professor of Economics at LUMS said, “Creating and expanding gains from trade are at the heart of how economies grow. EAG’s “Trade Connectivity” book and today’s event are attempts to focus attention on these issues, and provide a compact overview of major issues currently holding Pakistan’s international trade down among the least trading nations of the world”.

Dr Aadil Nakhoda, assistant professor of Economics at IBA, articulated that “Pakistan needs to make significant strides in participating in global value chains. The current situation is dire. However, there are opportunities if Pakistan undertakes regional trade agreements, reduces tariffs, focuses on improving quality of products through technical non-tariff measures (NTMs) and attract FDI in the manufacturing sectors. The government needs to ensure greater competition to foster innovation and improvement in productivity levels. Trade connectivity is an important vehicle for Pakistan’s progress”.

“Vietnam is a success story. A vast proportion of Vietnam’s trade is through participation in Global Value Chains (GVC). Pakistan, unfortunately, lags there. Total GVC of Pakistan is $5.5bn while other countries have more than $90bn (Vietnam, India, and Thailand),” said Dr Nakhoda.

Ali Salman, executive director PRIME, said that most of the trade liberalization coming out of trade is from unilateral trade agreements and Pakistan needs to liberalize its trade policies by reducing taxes and tariffs. Only then the country would be able to integrate into the global value chains and promote exports”.

“The most unfortunate thing in Pakistan is the negligence to understand the structure of the economy and transform accordingly. At the moment, Pakistan has irrelevant protectionist policies that are hindering the economic activities in the country”, said economic consultant, Asian Development Bank (ADB) Dr Nadia Farooq.

Industrial policy is very important and we need to work on it. Labor productivity is a way to enhance efficiency. In youth, out of 100 only 25 per cent are professional and skilled. Pakistan has many jobless PhDs who are only doing academic work and have no relation to industry, she added.

The public and private sectors in Pakistan are not on the same page and this gap can be reduced through dialogue. The private sector needs long-term policies to augment economic activity. Problem is that the policies of the government are not consistent, said Kashif Shabbir, CEO Tech Surge.

“Trade Connectivity” book highlights the one point where we are lagging i.e. regional connectivity. If we want to increase the exports we need to give targets to the private sector, and then we need to assess whether those targets are achieved or not, he added.

The tax regime in Pakistan is very complex. If we want a documented economy, we need to reduce the complexities of taxes so that more companies come in. Subsidy is another area where we need to assess the policies. The government is giving subsidies in some sectors, which is not good. We need a level-playing field for the survival of the fittest. The subsidy and protectionism are creating problems for Pakistan, he added.

“The government lacks the capacity to carry out technical analysis. What is the result? The donors come with reports to ministers with ideas and recommendations but there is no institutional capacity to understand the diagnosis” said Dr Muhammad Zubair.

Many professionals like to work for the government, but they do not want to work with political parties. The real thing is to work for political parties. From where the transformation shall begin.

The transformation of Pakistan’s economy requires out-of-the-box solutions that focus on trade connectivity, revisiting price regimes, new industrial strategy and optimal taxation policy, it says in the book.

The groups recommended reducing custom and regulatory duties and replace these with a uniform tariff across all sectors and product categories and redesign existing schemes (such as the SBP’s export finance scheme) to incentivize exports of new products.

Copyright Business Recorder, 2022