Exports fuel domestic productivity and therefore employment and at the same time constitute the most desired form of earning foreign exchange.

Pakistan’s exports are consumer based and traditional – rice, raw cotton, textiles, carpets, leather, sports and surgical goods – with surplus to domestic needs exported unlike exports of countries focused on export-led growth.

A significant portion of our imports consist of fuel and products and cooking oil, essentials for running electricity plants, for the householder, and to run the wheels of industry/commerce.

Given the nature of Pakistan’s exports and imports, trade is particularly susceptible to global economic conditions. Thus the international pricing of our exports varies dramatically from one year to the next based on global supply and in many a year the rise in exports is not due to higher quantity but higher prices. Imports too are subject to international pricing and available foreign exchange reserves; however, in recent decades the decision to develop an energy sector heavily reliant on imported fuel particularly furnace oil, an expensive fuel, has led to rising import bill. In addition, large scale manufacturing sector relies heavily on imported raw materials and any attempt to curtail imports leads to stifling domestic productivity and rising unemployment levels.

Limited foreign exchange reserves, less than a few weeks of imports, led the government to impose import restrictions last fiscal year and concurrently to manipulate the exchange rate that in turn led first to suspension and later to cessation (announced in June 2023) of the Extended Fund Facility programme. A new nine-month-long Stand-By Arrangement (SBA) programme was agreed on 29 June 2023.

The following table shows total exports (in goods and services), exports as a percentage of GDP, total imports and imports as a percentage of GDP.

============================================================================Year      Billions of US     Percent of GDP     Billions of US    Percent of         dollars (exports)                     dollars (Imports)         GDP============================================================================2007           20.14             13.21%              30.14            19.78%2008           21.06             12.38%              39.48            23.21%2013           30.70             13.2%               46.37            20.06%2014           29.92             12.24%              45.59            18.66%2015           28.69             10.60%              46.13            17.05%2016           27.40             8.74%               50.07            15.96%2017           27.89             8.22%               58.51            17.25%2018           30.56             8.58%               67.82            19.04%2019           30.14             9.39%               62.62            19.51%2020           27.94             9.30%               52.33            17.42%2021           31.55             9.06%               62.66            17.99%2022           39.42             10.47%              82.28            21.85%2023             35               9.06               63.349            17.5%============================================================================

Three observations are in order. First, during the tenure of the PPP-led government (2008-13) exports rose by a whopping 45 percent – from 21.06 billion dollars to a high of 30.7 billion dollars in 2013. In marked contrast during the tenure of the PML-N government (2013-17) with Nawaz Sharif as prime minister and Ishaq Dar as finance minister exports declined by 9.15 percent, from 30.70 billion dollars (2013) to 27.89 billion dollars (end-June 2017).

One of the reasons for the decline in exports was Dar’s policy to artificially control the rupee-dollar parity that was funded by a massive rise in external borrowing and using these borrowed funds to intervene in the market to artificially prop up the rupee value – a policy that had economically disastrous consequences.

Nawaz Sharif’s conviction was followed by the election of Shahid Khaqan Abbasi as the prime minister, and Ishaq Dar’s ignominious departure from the country led to the selection of Miftah Ismail, a qualified economist, as his replacement.

The IMF team visited the country in December 2017 as a first post-programme mission (Extended Fund Facility programme ended September 2016) and on 14 December 2017 uploaded the following preliminary finding on its website: “the move by State Bank of Pakistan to allow adjustment of the exchange rate is welcome.

Continued exchange rate flexibility in the period ahead will be important to facilitate external adjustment in support of exports and economic growth.” This reversal of Dar’s policy led to a rise in exports by June 2018 – from 27.4 billion dollars to 30.56 billion dollars.

Pakistan Tehreek-e-Insaf (PTI) government years showed a rise in exports from 30.56 billion dollars in 2018 to 39.42 billion dollars by 2022 (the government fell on 9 April 2022) – a rise of nearly 29 percent and this in spite of the dip during the Covid year of 2020 to 27.94 billion dollars of exports.

An in-depth analysis reveals that the rise was due to higher prices of our major export items rather than a rise in quantity or due to diversification of exports.

Dar was reappointed as the Finance Minister on 27 September 2022 and thenceforth the same economically disastrous policy of artificially propping up the rupee vale was implemented and this time without access to foreign borrowing and extremely limited foreign exchange reserves to intervene in the market the result was a decline in exports by 11 percent – from 39.42 billion dollars to 35 billion dollars last fiscal year.

Exports as a percentage of GDP have been continuously declining since 2008 – from 12.38 percent in 2008 to 13.2 percent in 2013 to 12.24 percent in 2014 declining to 8.22 percent in 2017 with a slight rise to 8.58 percent in 2018. During the PTI years as a percentage of GDP exports were higher than the average of the Dar years – above 9 percent and by 2022 exports rate rose to 10.47 percent.

Secondly, imports have been rising because of two factors in addition to their international prices (a function of supply and demand) and the rupee erosion: (i) the energy contracts signed under the China Pakistan Economic Corridor (2014 to 17) were on the same pattern as those signed earlier during the Benazir Bhutto and Musharraf governments that envisaged (a) capacity payments in dollars with 100 percent repatriation allowed, implying thereby that any foreign exchange reserve issues had the potential to disable the country from paying its dues as per contract, and (b) Independent Power Producers (IPPs) relied on the most expensive fuel source, furnace oil that further upped the import bill; and (ii) as foreign exchange reserves plummeted last fiscal year it prompted the government to impose import restrictions which disabled the manufacturing sector’s ability to import its raw materials leading to negative 0.3 percent GDP growth ion 2022-23.

And finally, what must be a source of concern to the country’s economic managers is the fact that the rise in domestic output does not contribute to a rise in exports which plummeted during the Dar years – from 13.2 percent in 2013 to 8.22 percent in 2017. Imports during the Dar years were constrained to 17.25 percent of GDP in 2017 against 20.06 percent in 2013 due mainly to the plummeting international prices of oil.

To conclude, there is a need for the government to focus on export-led growth, an objective that requires a shift away from exporting our surplus and instead setting up a productive base designed solely for exports. To achieve a decline in imports would require changing not only reliance on imported raw materials by the manufacturing sector and reforming the power sector that would require redesigning, which is a challenge given that the Chinese companies are unwilling to renegotiate the agreements made during the Nawaz Sharif tenure.

Copyright Business Recorder, 2023