Grim exports

Policymakers in the country are seriously concerned about dwindling exports and rightly so. In a Senate Standing Committee on Commerce meeting on 28th June 2016, Ministry of Commerce observed that country's exports would be around $20.9 billion in 2015-16, 12.4 percent or $4.6 billion less than the target of $25.5 billion set in the Strategic Trade Policy Framework (STPF) 2015-18. Brexit has created new challenges for Pakistan, especially with regard to GSP-plus status. The UK was the biggest Pakistani supporter in the EU and the country may have to find new friends in the EU to maintain its current status. Pakistan had to renegotiate trade arrangements with the UK itself and Pakistani products which are channelled to the EU through the UK will also face tariff issues. According to the Commerce Ministry, United Nations Industrial Development Organisation (UNIDO) has given five reasons for the decline in Pakistani exports including global price development, persistent power shortages, weak investment growth, narrow export base and poor infrastructure while the IMF has attributed the fall in exports to global commodity crisis, power shortages, business climate, external demand and exchange rate appreciation. Buying houses had also migrated to Bangladesh due to security situation in Pakistan.
The CEO, Trade Development Authority of Pakistan (TDAP), S. M. Munir, cited certain other reasons behind a decline in exports. He said that the government has to devalue the rupee to facilitate exporters and argued that with the depreciation of euro and Pound Sterling, exporters would face substantial financial losses. Rs 315-350 billion of exporters' refunds remained stuck in the FBR, the amount includes his own of about Rs 240 million. This had created a liquidity crunch for exporters. The Governor, SBP, had stated that he cannot clear the cheques without the permission of the Finance Minister. He lamented that exports had come down due to reasons not within his domain but he was tired of media queries. Pharmaceutical sector is facing a lot of problems, particularly those are related to Drug Regulatory Authority of Pakistan (DRAP). Its exports could increase by dollar one billion within six months in the absence of these problems. He also criticised Ministry of Agriculture for not playing its role in the development of agriculture. India's per acre production was three-four times higher than Pakistan. However, it was a good news that prices of both rice and leather have started rising during the last two months and the issue of energy has been resolved to a great extent. Gas is also available to the Punjab-based industry after the import of LNG which is cheaper than the domestic gas. Chairman of the Senate Committee, Senator Syed Shibli Faraz, remarked that Pakistan's export policy had always been security-centric instead of trade-centric and it was more important to consider the import-export balance than the size of exports.
Looking at the deliberations in the Senate Committee on Commerce, one could easily say that the discussion on exports on this forum was quite exhaustive and to the point. Almost all the factors impacting the level of exports were covered though nobody could expect an in-depth analysis of the subject in a short period available to the Committee. Since the data on exports for the first eleven months of 2015-16 was already available, it was not difficult for the Ministry of Commerce to estimate the amount of exports for the full year which is obviously disappointing. Exports of the country are not only going to be lower by about $4.6 billion than the target but would be less than half of the imports. The consequences of such an outcome could have been very severe if home remittances had not risen to the present level and the country had not borrowed heavily from other sources. The forecasting ability of our government also does not inspire much confidence. Exports are estimated to be only around $20.9 billion as against the target of $25.5 billion in STPF. Also, it is a pity to see that while country's policymakers and the relevant stakeholders feel the pain of declining exports, political leaders of the country are least interested in such mundane affairs. Out of 13 members of the Committee presided over by Senator Shibli Faraz, only Senator Karim Khawaja and Rubina Khalid were present at the meeting. It also needs to be noted that while the representative of Ministry of Commerce confined his statement mostly to the usual reasons of energy shortages, weak investment and poor infrastructure, etc, CEO of TDAP was blunt and to the point though his estimate of refunds withheld by the FBR may be an overestimation because of the government's claim of a much lower figure on this account. Anyhow, his argument for a rupee depreciation to boost exports is strong and needs to be considered seriously at the earliest. Brexit has made such a move even more urgent. Almost every analyst would agree with former Finance Minister Dr Hafeez Pasha that Pound Sterling has devalued by 11 percent after the stunning UK vote and this would have a hugely negative impact on country's exports. In view of the strong fluctuations in European currencies, Pakistan also needs to adjust the Pak rupee accordingly to improve competitiveness. After the exit of the UK from the 28-nation trading bloc, Pakistan may also not be able to get the full advantage of GSP-Plus status. Dr Pasha also apprehended that home remittances and FDI may also be adversely affected. It needs to be noted, however, that Ishaq Dar remains unmoved despite the warnings of overvaluation of the rupee and its damaging effect on exports. The UK Leave vote came as a bolt from the blue for the country and needs to be confronted by various means including the depreciation of the rupee. The allegation by the TDAP chief executive that the Governor SBP was so far not authorised to settle the refund claims was also serious because Dar had clearly promised to clear the claims in his budget speech. Overall, we can only hope that the issue of declining exports is given the importance that it deserves at this critical juncture.