The only way forward: Unlocking exports

Pakistan economy is like an old car - it runs smoothly at slow pace and causes trouble at higher speed. The ADB in a recent working paper described this condition in terms of numbers. The paper estimates the balance of payment constrained growth at 3.8 percent. If Pakistan's economy is to grow higher than 3.8 percent in the medium term, external imbalances may occur. The problem is that to absorb millions of youth coming into the workforce every year, the country needs growth of over 5 percent for 8 to 10 years.

The ADB paper calls for structural reforms to improve export performance. The poor performance of exports can be gauged from the fact that Pakistan's exports to GDP (2015-18 average) is better than only Afghanistan, Yemen and Ethiopia. This glaring statistic was shared by SBP Governor in an American Business Forum last week. He mentioned that Pakistan is in a club of worst five countries whose exports of goods and services are less than 10 percent of GDP.

There is no other way to come out of the frequent balance of payment crisis but to sustainably enhance the exports. The country got a life line in the past ten years due to unprecedented growth in remittances, thanks to Middle East boom. The party seems to be over. The world is bearish on oil outlook and these economies are shifting gears by looking inward to employ more of their own population. Do not expect remittances growth to remain unabated.

There is no fun in celebration of current account surplus for a month. There is no fun in celebrating hot money flows crossing billion-dollar mark. There is no fun in celebrating primary fiscal surplus in the first quarter. There is no fun in reducing circular debt at the cost of consumers. There is no fun in celebrating SBP reserves crossing $10 billion mark. These are symptomatic reliefs necessary for living on clutches, and not to be completely paralyzed. The country is a long way from participating in a marathon.

Single point agenda of SBP and other related government economic agencies should be on boosting exports in the next five years. Without doing so in next ten years, the threshold of 3.8 percent may fall further. Masses will keep on dragging into poverty. The country needs an SOS call for next 5 years to singularly focus on boosting exports.

Many say that keeping interest rates high or depreciating currency is stifling growth. Unemployment is on the rise. Yes, they are right. But these economic commentators need to narrate what is the alternative. The government had to curb the monthly current account deficit of $2 billion and now six months' deficit is almost at $2 billion. There are side-effects of chemotherapy. One has to live with it. The focus should be on killing the cancer.

The country needs to regain its lost competitiveness. The industrial sector is shrinking. The environment is not conducive. The regulatory burden is skewed towards manufacturing. The capital has shifted towards unproductive sectors. The jewel of exports is hidden in gaining industrial manufacturing strength. Build the policies to make manufacturing conducive. Smart entrepreneurs will find the exporting avenues by themselves.

The policy of providing credit subsidy to exporters is just one element, but not the key driver. Back in the day when textile exports became the life line of the country's external buffers, the government support was mainly in correcting the pricing mechanism of cotton and zoning of crops. The rest was private sector driven. The government should not pick the winners. Else, the habitual breed will keep on seeking rent without growing at required levels.

The other important element is to bridge in the gap of government revenues and expenditure. The private savings should not be eaten by inefficient public sector. The expensive foreign savings should not be used for inefficient government consumption. Debt is not bad in isolation. The usage of debt for enhancing productivity is important. The country needs to have foreign debt to create buffers. Right now, debt is routed to government. It should rather be picked by productive private sector.

The exports are not covering half of necessary imports - country has to take debt for pure consumption needs, not for enhancing future production. Make an environment where private sector fetches debt from abroad - a good private company can get foreign debt at 4-5 percent in dollar terms. The cost is less than what the government is getting on commercial basis.

Private sector will get loans to produce something. The government is fetching loans for its consumption. The government cannot pay pension to its retired employees without borrowing. The defence of the country and whole machinery of the federal government is running on borrowed money. There has to be an end to this madness.

The country got some shock treatment and it needs more shocks to realign the interests. The power is not in the hands of generals, bureaucrats or judges. In history, they used to wield power. Now the big money is driving the country. In the past 20 years, the size of the economy has expanded and the big groups are becoming giants in local context.