ISLAMABAD: The country’s exports and imports have posted a negative growth during first three quarters (July-March) 2022-23 due to global slowdown, domestic policies and restrictions on imports due to foreign exchange availability issues.
According to Economic Survey released on Thursday, exports declined by 9.9 percent during Jul-Mar FY2023 to $ 21.0 billion compared to $ 23.3 billion in the same period last year. The decline in exports was driven by both declining trend in export volumes and unit values.
The decline in exports mainly occurred due to the inadequate performance of textiles and food group. The decline was owed to the weak global demand and lackluster performance in the domestic economy. Further, the demand curtailing measures taken by the government also affected exports performance. However, the government has taken policy incentives to boost exports.
July-April FY23: Trade deficit declines 39.62pc to $23.71bn YoY
An analysis of group wise data suggests that major groups registered a negative growth. Food group decreased by 3.4 percent and reached $ 3.8 billion during Jul-Mar FY2023 as against $ 3.9 billion during same period last year. Within the food group, rice exports decreased both in quantity and value by 18.8 percent and 10.9 percent, respectively.
During July-March FY2023, exports of textile group witnessed a decline of 12.4 percent and reached US$ 12.5 billion compared to US $ 14.2 billion during the corresponding period last year. Textile sector faced multiple issues including energy shortages, high electricity tariffs, elevated financing costs, and global slowdown. Moreover, the devastating flood has destroyed cotton crop which possess severe challenges for the industry.
The zero-COVID policy in China is providing more opportunity for other economies to seize its exports share. Bangladesh has grabbed this opportunity with both hands. However, in Pakistan the domestic economic issues are creating hurdles in exploiting this opportunity. The other problem is of the turnaround time of exports. Raw material is being imported, processed, and re-exported.
The turnaround time in Pakistan is 5 to 6 months higher than in Bangladesh which is 1 to 2 months. The potential export growth is hindered owing to lack of diversification in export goods. The trend of Pakistan’s exports of major items remains more or less same having concentrated on three items, namely cotton manufactures, leather and rice.
During FY2023 (Jul-Mar), Rs.25 billion has been paid to the exporters as Customs Duty Drawback. Customs Duties on more than 100 tariff lines rationalized during budget exercise as well as 37 tariff-lines for packaging sector, 10 tariff-lines for dyes sector, and 101 different tariff-lines related to farm mechanization.
To incentivize exporters, rupee-based discounting of exports bills/export receivable was introduced under Export Finance Scheme (EFS)/Islamic Export Refinance Scheme (IERS). This facility helps in providing early payments to the exporters by the banks against the export bill/export receivable at the prescribed rates. This facility is available at both post shipment & pre-shipment stages at rates ranging from 2 % to 3 %, depending upon the tenor of discounting.
The basmati rice exports decreased both in quantity and value by 21.5 percent and 7.2 percent, respectively during Jul-Mar FY2023. The major decline was observed in rice exports to Afghanistan (98 percent), followed by China (57 percent). Likewise, the other varieties under rice group during Jul-Mar FY2023 witnessed a decline of 12.1 percent in value and 18.4 percent in quantity.
Exports earnings from fruits during Jul-Mar FY2023 decreased by 42.6 percent in value despite an increase of 4.1 percent in quantity, Vegetables witnessed an increase in quantity by 53.4 percent but decline by 5.5 percent in value.
As far as the top export destinations are concerned, USA still remained the largest exports market for Pakistan during Jul-Mar FY2023. Exports to USA have moderately decreased to 19 percent in Jul-Mar FY2023 as compared to 21 percent last year.
Similarly, Chinese share in exports has decreased to 8 percent during the period under review. The total imports during Jul-Mar FY2023 amounted at US$ 43.7 billion as compared to US$ 58.9 billion in the same period last year, declined by 25.7 percent, reflecting the impact of policy tightening and other administrative measures.
The Government had undertaken following regulatory measures to curtail the imports: To ease the pressures on the import bill and to contain CAD at a sustainable level, SBP has imposed a 100 percent Cash Margin Requirement (CMR) on a total of 702 items, covering 22 percent of overall imports in the country. Moreover, the 100 percent CMR has been relaxed where the credit terms of import 91 to 180 days the applicable CMR would be 25 percent, and for 181 days and above the CMR would be 0 percent. The CMR remained enacted till March 31st 2023.
The ban on imports was replaced by import compression exercise carried out in order to mitigate the adverse impacts of Forex shortage. RDs up to 100 percent were levied on more than 800 non-essential/luxury items.
Tightening in regulations for exchange companies regarding FX purchases by individuals, including biometric requirement and imposition of daily and annual limits for FX purchases.
To restrict the demand for automobiles, SBP has amended the prudential regulation for consumer financing. Key measures included restricting the amount of the amortized payments to 40 percent of the monetized salary of the borrower, reducing the maximum down payment from 15 percent to 30 percent and limit the overall auto financing limit by one person from all banks/DFIs to Rs. 3,000,000 at any point in time.
To curb the aggregate demand, and there by associated import demand, the SBP increased the Cash Reserves Requirements (CRR) for banks by 100 bps during the reserve maintenance period, as well as for daily minimum requirement.
To ensure judicious use of cards, including virtual cards, for Foreign Currency related payment, an annual limit of $ 30,000 per individual has been placed on card based cross border transactions.
The European Union (EU) is Pakistan’s largest export partner. Four Pakistani products have duty free access in all 27-member states of the EU on 91 percent tariff lines under EU’s GSP+, since 1st January 2014. Pakistan made some further legislative progress in the human rights domain majorly and also in some other areas and shared it with the EU Commission in October 2022.
At this stage, periodic review report of the EU Commission is awaited after which the concession scheme will continue till December 31, 2023 if Pakistan successfully completes this review. As a result of this arrangement, Pakistan’s exports to EU have increased by 165 percent since the grant of EU GSP Plus in 2013.
Pakistan’s exports to EU for year 2021-22 stood at US$ 9.2 billion. EU is going to launch another 10 years scheme of GSP (2024-34) with some additional conventions other than 27 international conventions to which Pakistan is already complying with.
The beneficiary countries would be able to apply after 1st January 2024 till 31st December 2025. Pakistan has started working for the upcoming scheme. GOP has submitted its response to the proposed conventions.
Copyright Business Recorder, 2023
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