I think that under-invoicing, smuggling and undue delay in refund claims are the main reasons behind the fast widening trade deficit that has now escalated to more than 15 billion USD and has increased by 4.2% as compared to the past financial year. The country's total exports declined to $ 12.087 billion in the first seven months of the current fiscal year (Jul-Jan) 2015-16 from $ 14.115 billion during the same period last year.
Amid fresh concerns over further loss of competitiveness in global markets, Pakistan's external trade deficit stood at roughly $12 billion during the first half of this fiscal year (July-December 2015) -$3 billion more than International Monetary Fund's projections - owing to a steep decline in exports.
There is an urgent need to promote exports by exploring new destinations. Strengthening of regional trade will also help pave way for minimising the trade deficit. If the industry gets a regular supply of cheap electricity and gas, the unemployment graph will come down, law and order situation will improve while exports will register a surge.
The government and the concerned departments know well that a massive increase in trade deficit would have dire consequences for the economy of Pakistan; therefore, it is a high time that the government should act fast by putting curbs on unnecessary import of luxurious items and checking massive under-invoicing that is eroding the competitiveness of local economy and promoting imports.
At the same time, the government should also facilitate the exporters and implement all trade facilitations enshrined in trade and textile policies. The economic realities show that the country cannot sustain a high and growing trade deficit therefore the trade development should be enhanced through a close co-ordination with Chambers of Commerce and Industry. The growing trade deficit, led by a decline in exports, is posing key challenge to the macroeconomic stability of the country besides converting it into a Consumer Society.
The galloping trade deficit and resultant inflation might dent country's debt payment capacity that ultimately would not be a happy sign for the overall economy. The growing trade deficit could increase inflationary pressure as Pakistan has reportedly been importing a number of food items including pulses, wheat, medicines and milk apart from machinery and other items.
Apart from cutting the cost of doing business in Pakistan, the government would have to evolve a long-term strategy to make its products attractive in the global market to increase its exports. Moreover, the curtailment of productions due to power cuts by the local industries catering to the domestic markets also encouraged imports and contributed to the huge trade deficit therefore the measures should be taken to stem electricity shortage.
The concerned government departments should join heads with the private sector for finding out a methodology for increasing the exports of the country that is a prerequisite to control trade deficit. In a country where the economy is facing a recession like situation, the interest rates are brought down to stimulate growth, whereas in Pakistan it is the other way round. In the last two years interest rates in Europe and the United States have been brought down close to zero to save the economies from collapse. This is the time that interest rates should be brought down to spur growth.
The private sector is the only hope for salvaging this country from a total economic collapse therefore a significant cut in cost of doing is direly needed. In the last few years, the private sector had suffered setbacks because of higher cost of doing business. Investment in new industrial projects and expansion in existing industry have come to a standstill. A massive flight of capital has taken place to other countries in the region where investment and business environment is favourable and future prospects are quite brighter.
We are one of the most vibrant nations but unfortunately we have never tried to exploit our strengths. The countries that were far behind in economic terms only a few decades ago are now miles ahead of us. For instance, the collective exports of South Korea, Indonesia, Malaysia, Philippines and Thailand were much smaller than that of Pakistan's in 60s and today each of them individually is far bigger exporter than Pakistan.
There are a few suggestions that could ensure a speeding increase in volume of exports: -
The government should facilitate local industry to the maximum that would not give boost to the trade and economic activities but would also give a strong positive message to the foreign investors. Skilled labour should be ensured to cope with technological advancement as lack of skilled human resources is causing heavy damage to the industrial sector. Government should establish maximum technical training centers across the country, particularly in the rural areas which would also help reduce poverty in those localities.
The government should hire international lobbies to improve the image of the country as law and order situation has drastically improved. It would attract the foreign investors, pave way for joint ventures between the local and foreign investors and give expansion to the industrial sector. It would also generate millions new employments. Cutting short the long story of our ups and downs, I just want to share in the end that the country today needs a collective wisdom to tackle the economic challenges being faced by it for the last many years. We have already lost a lot of valuable time and cannot afford to lose more.
(The writer is a renowned businessman and member Board of Directors of the Lahore Chamber of Commerce & Industry)
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