Another package for exports

Federal Finance Minister Miftah Ismail in his budget wind-up speech announced that a 24 billion rupee export package will be announced in the remaining two weeks of the tenure of the Abbasi-led administration. According to him, "we have decided on a new export package to further boost exports which had been on the downside during the last few years and are now showing some growth subsequent to measures taken by the incumbent government as well as depreciation of the exchange rate."
A few clarifications are in order. First, the export package announced during the first week of October 2017, two months after Shahid Khaqan Abbasi took oath as the country's prime minister and had appointed Miftah Ismail as his advisor on Finance to replace Ishaq Dar as the key decision-maker after the latter's departure from the country, was an extension of the 180 billion rupee export promotion package announced by Nawaz Sharif in January 2017 which envisaged reduced customs duty/sales tax on cotton, man-made fibres and textile machinery as well as revised duty drawbacks on a range of textile-related exports, including garments, processed fabrics, yarn and grey fabric, as well as sports and leather goods and footwear. The Abbasi-led administration tweaked the earlier package by agreeing to extend 50 percent of the package to the eligible exporters without the condition that only those exporters who increase their exports by 10 percent may benefit while the remaining 50 percent to be provided if exporters achieve the 10 percent increment. The 40 billion rupee package was to be partially funded through higher duties on imports. The two export promotion packages also envisaged clearing of exporters refunds which, according to exporters, are in excess of 200 billion rupees today.
Second, the claim that export growth has picked up in recent months is accurate though what is not highlighted is the fact that the trade balance has continued to deteriorate with a consequent widening of the current account balance that, in turn, is placing an inordinate pressure on the country's foreign exchange reserves - reserves that have reached a critical level as they are insufficient to meet three months of imports. Trade balance during 2012-13 was a negative 15 billion dollars which escalated to negative 16.5 billion dollars in 2013-14, negative 17.2 billion dollars in 2014-15, negative 19.2 billion dollars in 2015-16 and negative 26.5 billion dollars last year. This year's data reveals that the trend has further worsened and data released by the Pakistan Bureau of Statistics reveals that while in July-April 2016-17, the trade deficit was a negative 26.4 billion dollars the comparable figure for the current year is a negative 30 billion dollars.
The one area of continuing difference between the Sharif administration and the Abbasi-led administration is in the treatment of the exchange rate - the former intervened in the market to keep the rupee stable thereby meeting one of the directives of the seriously misinformed Nawaz Sharif that a strong currency is good for the economy (though in reality it undermines exports and makes imports more attractive) and which also led former Finance Minister Ishaq Dar to understate the interest and repayment of external loans as and when due.
However, by December 2017 when the International Monetary Fund (IMF) mission was in the country to prepare the first post-programme report the Abbasi administration was prevailed upon to allow the rupee to depreciate (by 10 percent) in an effort to promote exports. This measure was too little too late and the government was then prevailed upon to further depreciate the rupee though that too was too little, accounting for a widening of the trade deficit.
From January 2017 till to-date, exporters have consistently urged the government to implement the package in letter and spirit but to no avail. The question is if the January and October 2017 package could not be implemented then how can the much smaller 24 billion rupee promised package be implemented (after Abbasi and Ismail lose their jobs on the 31 of May this year) given that money has not been earmarked for this package in the budget which is reliant on even more unrealistic sources of revenue than envisaged during Dar's tenure (including reliance to the tune of 230 billion rupees on self-financing by corporations/authorities that are reliant on the budget in excess of 1 trillion rupees).
To conclude, the budget and the export package are not likely to be implemented given the sheer massive scale of benefits extended to all major groups in the country while setting the expenditure priorities - benefits that cannot possibly be funded given the accompanying massive tax relief measures. And with the growing perception in PML-N ranks that the party is unlikely to win the next elections this aspect of the budget leads one to the extremely disturbing deduction that the budget presented by the Abbasi-led administration is a deliberate attempt to make it extremely difficult for the next government to manage the economy without a wholesale revision of the budgetary measures.