The latest data released by the Pakistan Bureau of Statistics (PBS) revealed a trade deficit of 17.428 billion dollars (July-January 2016-17) and the comparable figure for the year before was 13.544 billion dollars - a rise in deficit of 28.68 percent.
The components of the deficit: a 3.21 percent decline in exports (from 12.073 billion dollars July-January 2015-16 to 11.685 billion dollars July-January 2016-17) and a 13.65 percent increase in imports (from 25.617 billion dollars to 29.113 billion dollars in the comparable period).
As per data contained in the Economic Survey 2015-16 and recent data from the Pakistan Bureau of Statistics (PBS), there is a marked difference in the export and import growth depending on whether it is calculated in dollars or rupees. The table shows that imports rose by 35.6 percent rise in 2007-08 in rupees, the last year of the Musharraf era, 18.69 percent in 2010-11, 16 percent in 2011-12 and 25.89 percent in 2012-13, (nine months of the PPP rule and the remaining by the Caretakers). Thenceforth there was a decline in the import growth attributed to the decline in the international price of oil. However, by end November 2016, oil prices began to rise subsequent to the Opec meeting and between November and December 2016 oil price rose by around 4 dollars a barrel accounting for over 10 percent increase in imports, though the increase was not as high as in 2007-08.
Exports rose by 16 percent in 2007-08, a massive 31 percent in 2010-11 and began their negative trajectory from the second year of the Sharif administration. When calculated in dollar terms the growth for both exports and imports was considerably less. The question is why?
Pakistani governments have always leaned towards an exchange rate that is lower than the real effective exchange rate (REER) to show lower mark-up and repayment of external loans in the budget. Ignored is the fact that this makes imports more attractive for Pakistani buyers and exports less attractive to our foreign buyers. The difference between the REER and the average prevailing exchange rate has widened considerably during the Dar led Finance Ministry: (i) in February 2013 the last full month of the tenure of the PPP led coalition government REER was 100.0390 and the exchange rate (average of the month) was 97.9687 with a difference of 2.07; (ii) in March 2016 the difference had reached an alarming 15.416 (REER 120.0639 and exchange rate was 104.6470); and (iii) in November 2016 the difference widened to 21.29 (REER 125.9848 and exchange rate at 104.6935). The question is: did the yawning difference between the REER and average exchange rate have any impact on exports and imports?
In the second half of the first year of the Sharif administration, the rupee suffered from a freefall that led the Prime Minister to instruct Finance Minister Dar to ensure that the rupee is stabilised and strengthened against the dollar - a direction that was inexplicable from the perspective of economic theory but nonetheless followed by Dar. This led to a negative growth rate in exports from 2014-15 onwards while the difference between REER and the exchange rate began to widen. The negative growth of exports was relatively more contained in July-December 2016-17 when the REER and exchange rate for November was at its widest relative to the comparable period of the year before and perhaps one observation is in order: in 2015-16 the export growth was negative 12.11 percent in dollars terms for the whole year and negative 14.40 percent during the first six months or in other words the rate was better for the entire year relative to the first six months. One would have to wait and see if this trend would imply that the negative 3.04 percent fall in exports during the first six months of the current year would show an improvement for the entire year especially subsequent to the announcement of the export package and government commitment to clear the refunds.
The percentage difference in the import growth rate when measured in rupee and dollar terms in 2012-13 (25.89 and 11.22) was around 130 percent while the difference during Ishaq Dar-led Finance Ministry's first full year is 2288 percent. However, in subsequent years as he began to exert greater control over the exchange rate the country entered a new era where imports measured in dollars began to show higher growth rate, excluding when it reached the negative realm in 2015-16, relative to calculations in rupees. The July December 2016-17, import growth rate shows a slight reversal in this trend; however, it is likely that as and when the year-end data is available this situation would reflect the norm prevalent during the time Dar has held the Finance portfolio.
International price of petroleum and products, the largest component of our imports, declined during the past three and a half years relative to the period 2007-13 cited repeatedly by the International Monetary Fund under the 36-month Extended Fund Facility quarterly reviews as providing fiscal space to the government to enable it to reduce its fiscal deficit. In fiscal year 2014 total imports of petroleum and products accounted for 14,774 million dollars and declined to 12,344 million dollars in 2015 and to 8359 million dollars in 2016 though the price has risen in the current year accounting for 4998 million dollars in the first half of the current year compared to 4784 million dollars worth of oil imports in the comparable period last year.
The government is at pains to point out that total imports rose in spite of the price decline of oil and products due to a rise in machinery imports. This claim allows it to theorise that the business environment improved during the Sharif administration accounted for a massive rise in machinery imports. This contention is not borne out by facts because the import was limited to power generating machinery under China Pakistan Economic Corridor - from 488 million dollars in 2012 to 1005 million dollars in 2016 - and it is relevant to remind the readers about Fitch rating agency's most recent report argues "the extent CPEC benefits the country's external finances will depend on the exact terms of projects particularly financing plans and the import intensity of investments."
The government may be tempted to point out in its defence that the World Bank improved our ranking on ease of doing business by 4 - from 148 to 144. However, it is relevant to note that the Bank rated us 6 points lower in starting a business and 7 points lower on access to electricity in 2017 compared to 2016. Enforcing contracts was ranked 2 lower in 2017 compared to 2016. So what improved? Getting credit improved by 52, however, local analysts argue that this improvement was due to a decline in the interest rate and those with stuck-up refunds suffering liquidity crisis borrowed to meet operating expenses; those who had procured loans in the past at high rates borrowed to retire old loans procured at high interest with lower existing rates.
The foregoing reflects the obvious: the performance of exports and imports are a function of the country's fiscal and monetary policies as well as interventions in the foreign exchange markets that reports indicate are the outcome of directions by the Minister of Finance to the State Bank. The Ministry of Commerce, subjected to unfair criticism for declining exports by the Prime Minister, logically lays the blame on the Ministry of Finance for four reasons: (i) an overvalued rupee that has been the cause of lower exports; (ii) refund delays by the Federal Board of Revenue under the administrative control of the Ministry of Finance; (iii) higher taxes and utility tariffs compared to regional competitors; and (iv) lower availability of inputs relative to regional countries.
However, the question is what could the Ministry of Commerce have done under the leadership of its Minister Khurram Dastgir for the past three and a half years that could have improved our exports? First, Dastgir heads the Textile Ministry, accounting for the bulk of Pakistan's exports; however, major textile exporters have consistently heaped much criticism against him for ignoring their genuine concerns. Afridi, the former Textile Minister, continues to be much missed by the exporters. In this context, it is relevant to note that data from the Ministry of Planning, Development and Reforms indicates that the government has not released any funds for development projects under the Textile Industry Division since the start of the current fiscal year and no doubt the blame for this resides again with Finance Ministry. Dastgir, however, has been accused of not spending the Export Development Fund (EDF) collected from the textile sector on the sector but again Dastgir could state that out of the 6 billion rupees collected as EDF Finance released only one billion rupees to the Commerce Ministry.
Secondly, all Preferential and Free Trade Agreements that Pakistan signed, predating the incumbent government, have favoured the other country's exports to us and three and a half years with the Commerce portfolio Dastgir has been unable to finalise any PTA or FTA with any country. And finally, attendance at international trade shows as well as appointments of trade officers abroad which should be his prerogative but is not has not made a significant difference in raising exports and one is compelled to place the blame on the Minister who has the prerogative to resign in protest if he is unable to take measures to improve the performance of his Ministry.
Dastgir spends the bulk of his time in defending the policies of Ishaq Dar who rarely attends parliament to respond to questions by parliamentarians - a function that he performs poorly as he is not privy to policy decisions or their rationale. But as aforesaid Dastgir can resign if he feels that the Finance Minister's contribution to his Ministry is all pervasive - a line of action that few federal ministers consider even though that may raise their political stature in the eyes of the public though not in the eyes of the Prime Minister who they credit for their portfolios.
===========================================================================
Export Export Import Import
growth (Rs) growth ($) growth ((Rs) growth ($)
===========================================================================
2007-08 16.26 12.23 35.66 30.86
2010-11 31.12 28.61 18.69 16.43
2011-12 -0.48 -4.71 16.03 11.13
2012-13 12.12 -1.41 25.89 11.22
2013-14 9.17 2.66 6.45 0.27
2014-15 -6.34 -4.88 0.63 2.01
2015-16 -9.55 -12.11 0.50 -2.32
2015-16 July-Dec -12.11 -14.40 -5.42 -7.86
2016-17 July-Dec -3.04 -3.82 10.97 10.11
===========================================================================
Comments
Comments are closed.