The new commerce minister, Mohammad Pervaiz Malik, has inherited challenges like trade deficit, declining exports and declining Foreign Direct Investment (FDI) and it is expected that he might take steps to address these challenges soon. As per data of Pakistan Bureau of Statistics (PBS), trade deficit widens by 55.46pc in first month of 2017/2018. Pakistan's balance of trade started with deficit of $3.2 billion in the first month of 2017/2018 which was higher 55.46 percent when compared with the same month of the last fiscal year.
"The rising trade deficit poses one of the most serious economic challenges for the government in its current term," said Ameen Jan, former consultant at Mckinsey & Company and UN. When the PML-N came to power in 2013, the country's annual trade deficit was $20.44bn. It has been continuously on the rise since then. Imports recorded a growth of 37pc to $4.84bn in July from $3.54bn a year ago. The overall import bill rose 18.7pc to $53bn for 2016-17, he said.
Moreover, exports are declining despite the government claiming to provide export-oriented industries with round-the-clock power supply since November 2014, and a concession of Rs 3 per unit in the electricity tariff since 2016, Ameen Jan added.
On the other hand, industrial gas tariff in Pakistan is 100 per cent whereas electricity tariff is about 50 percent higher than the regional competitors. However, some reports claim that electricity is available at Rs 10.5/kwh for the industry in Pakistan as compared to Rs 7/kwh in other regional countries including Bangladesh. Further, gas is available at Rs 1,000 /MMBTU in Pakistan against Rs 400 in Bangladesh.
"The only chance for the government to decrease trade deficit is to increase the exports and discourage unnecessary imports as the import bill is already increasing due to high energy imports and rupee devaluation against dollar," said a source in the industry.
"However, the government needs to keep domestic industry at the forefront when it negotiates FTAs with Turkey and other countries. Developing a local manufacturing base for value added products which have export potential is a key part of the solution to the trade deficit," said Ameen Jan.
Local industries of the country are set to lose their share substantially under FTA with Turkey as it was reported that Turkey showed reluctance to reduce duties on textile products soon after signing of the pact which is Pakistan's main export product, he said.
"The FTAs under negotiation should not undermine Pakistan's local industries like automotives, paper and packaging, and diapers. Rather, they should support the wider economic objective to bring more foreign investment and technology transfer into these and other sectors of the economy, thereby supporting industrialization and generating employment, " reasoned Ameen Jan.
He gave the example of the local automotive sector which has more than 300 vendors and generates employment for thousands of people. The sector is expected to continue growing, which is attracting new players willing to invest in Pakistan. Any FTA should carefully consider the effects on domestic industry, with the objective to ensure that domestic manufacturing is strengthened and made more competitive, he added.
The diaper industry of the country has also demanded a pragmatic approach regarding concessions on raw material import against the import of finished goods to boost local industry, generate employment, and tap export markets, he said.
"This FTA should ensure that our domestic industry gets strengthened through reducing raw material and machinery import costs, and not in reduction of customs duties on value added products that Pakistan can produce at a globally competitive cost-quality," Ameen Jan concluded.
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