Growth in exports

Pakistan’s merchandize exports have shown double-digit growth rate of 10.5 percent in the first half of 2024-25. This must be deemed a good performance for two reasons.

First, this is significantly faster than the growth rate in the corresponding periods of 2023-24 and 2022-23, of 5.2 percent and negative 5.7 percent, respectively, and second; world trade has lacked buoyancy and shown growth of only 3.3 percent in 2024.

There has been some variation in performance of the different segments of exports. Agricultural exports have shown the fastest growth, which has approached 20 percent. Next in performance are exports of textiles, with a growth rate of just over 10 percent. Exports of other manufactures have shown a relatively low growth rate of 5 percent.

The buoyancy of agricultural exports is due to the extraordinary growth in rice exports of over 35 percent. This was attributable to the bumper crop of almost 10 million tons, which was 34 percent higher. Also, India had temporarily introduced a ban on rice exports which created more space for Pakistan’s exports of rice.

The double-digit growth in textiles exports in July to November 2024 was concentrated in value-added textiles. Knit wear exports increased by 19 percent while the increase in readymade garment exports was even higher at 21 percent.

The rise in both these exports is due both to price and quantity increases. The average price of readymade garments has been higher by 7 percent, while there was a big jump in quantity exported of as much as 14 percent. The growth rates in knitwear are 10% in price and 9 percent in quantity.

However, the level of diversification remains limited. Textiles exports accounted for 55 percent of total exports in July to November 2024. This is only marginally lower than the share in the corresponding period in 2023-24 of almost 57 percent. The share of agricultural exports has risen from 21 percent to 23 percent, while that of other manufactures has declined somewhat from 24 percent to 20 percent.

There are potentially some emerging exports which are in the range of USD 400 million to USD 1 billion annually. Within the agricultural group this includes fish and fish preparations, vegetables, oil seeds and nuts and meat and meat preparations.

Within other manufactures, exports with significant growth potential include leather manufactures, chemicals, pharmaceutical products, surgical goods, plastic materials and exports goods. A special focus needs to be on developing the exports of these products.

There is a need to recognize that the double-digit growth in exports has been achieved despite several handicaps and the performance of our exporters must be commended.

These handicaps leading to a loss of export competitiveness include, first, the, more or less, fixed nominal exchange rate since March 2024. Consequently, the real effective exchange rate index is probably now above 100.

Second, there are major cost disadvantages. Perhaps the best example is the electricity tariff on industry. Estimates are that it is more than two times higher than in India or Bangladesh. Similarly, gas prices are substantially higher.

There was a time when major steps had been taken for export promotion in Pakistan. These included lower interest rates on loans and subsidy on electricity consumption with lower tariffs than on domestic market producers. Also, there was a lower income tax rate, fixed at 1 percent of the value of exports.

There was a time in Pakistan’s early history when a well-designed bonus voucher scheme was in operation to increase profitability of exports.

Unfortunately, we have seen most of these facilities and incentives being withdrawn. The latest example is the end of the lower income tax on exports in the budget of 2024-25. Now, exporters will be subject to the full corporate income tax. Apparently, the tax benefit has been withdrawn at the behest of the IMF.

There is need to highlight that Bangladesh is also in a similar IMF Programme as Pakistan. Nevertheless, strong export incentives continue unchanged. These include, first, effectively a higher exchange rate up to 20%, depending on the degree of value added and export to an emerging market.

Second, there is a policy tax exemption to exporters as follows:

First three years 100 percent

Next three years 50 percent

Next 1 year 25 percent

These strong export incentives have certainly contributed to boosting Bangladesh goods exports to USD 52.5 billion in 2023, almost 75 percent above Pakistan’s exports. They have shown an annual growth rate of 18.3 percent from 2013 to 2023. Pakistan’s exports are only 56 percent of Bangladesh’s and with an annual growth rate in the last decade of only 1.4 percent.

An ambitious target has been included in the Uraan plan announced recently by the government. It is proposed to double exports in the next five years. This will require an annual growth rate in exports of almost 14 percent.

No detailed export growth strategy has been presented as a part of the Plan, including the measures required to induce investment in export-oriented sectors, type of incentives and export marketing system of Pakistani products.

The IMF must be told that discriminatory treatment is not acceptable. Pakistan should be able to provide the incentives to exporters, which are as strong as those given in Bangladesh, a country which is operating in an IMF Program like Pakistan. Surely, the IMF realizes that exports remain the lifeline of Pakistan.

Copyright Business Recorder, 2025