Pakistani exports are up, and so is the competitive threat to their future growth. But what are its trade prospects in the regional framework? The region offers a still bigger potential everyone agrees.

The situation calls for a strenuous, two-pronged effort to keep the exports rising, and to counter the growing external threat, particularly in the run up to the start of the WTO regime, that is merely 14 months away. The second part of the effort, which in fact will be a major struggle, has to be viewed in the context of claims and counter-claims regarding Pakistan’s readiness to meet ushering-in of the WTO regime. While the government, particularly Commerce Minister Humayun Akhtar, insists that the country is ready to meet the WTO challenges and removal of global customs tariffs and quotas, the businessmen, industrialists and exporters contest such claims. Their feelings and apprehensions can be summed up in the saying “too little, too late.”

However, as of now, there is a word of cheer. As the first quarter of the current fiscal 2004 has just finished, it saw exports rise 14.65 per cent to $2.967.63 billion compared to the like first quarter of fiscal 2003. Seen from the perspective of the $12.1 billion overall export target for the entire fiscal 2004, the performance during the first quarter was a shade below—0.48 per cent— and should have been $ 3.00 billion . But, it is quite common for the first—and even second quarter of the fiscal—to be slow moving in exports as production gradually gear up after the start of each new fiscal which is spearheaded by announcement of the national budget in June. In fact, it is already confirmed by August exports which were higher than July, and September statistics that were higher compared to both July and August. Exports will pick up faster in coming months, industry and exporters insist.

Imports, too, rose 11.84 per cent to $3.105 billion, in the first quarter, compared to the like 3-months of fiscal 2003, according to just-unveiled official statistics.

Trade deficit: A healthy sign in the foreign trade field, so far, is that despite the boost in imports, the trade deficit around 26.75 per cent at $137.99 million, compared to the first quarter of 2003. It means that Pakistani exports funded 95.55 percent of the total imports—up from 91 per cent for the entire 2003—showing a decline in borrowed or aid-funded imports.

The increases in the foreign trade sector are attributable both to external and domestic factors. Exports rose partly because of a larger access EU allowed to Pakistani textiles nearly two years ago. But, Islamabad’s hopes for Washington to allow similar access to its textiles have not materialised, mainly because of the opposition of the American textile lobby that has been undergoing a downturn for several years. Larger trade dollar inflows also helped build up official forex reserves, leading to stabilising the exchange rate.

In fact, Pakistani rupee appreciated more than 11.6 percent in the last 18 months. But the State Bank of Pakistan, through its buy and sell operations,has modified the rupee appreciation so that merchandize exports do not become too expensive, and uncompetitive. Domestically, historically low interest rates, some closer to four percent, now being charged by banks, as well as an under-four percent annual inflation, also has helped reduced the cost of production. Part of the unused industrial capacity that remained out of operation since mid- 1990s, has recently been coming back into production in order to generate larger surpluses to feed the growing export possibilities.

But, this very favourable scenario could be short-lived. Already independent economists are apprehending an increase in inflation as well as banks’ lending rates. Both can push the cost of production up, and make competition more difficult in the global market place.

Pakistan also worries that its exports are heavily cotton- based and largely confined to textiles. Out of its $11 billion exports in fiscal 2003, the textiles group contributed $8 billion to forex earnings. It has a plus, as well as a minus, point inasmuch as it means an over-dependence on a single item. This is in spite of the fact that Pakistan has a comparative advantage in this field. But this trend is continuing during the current year, too. During the first quarter of 2004, export of textiles alone rose to $1.967 billion —66.65 per cent of overall exports, up from 65.50 in the like quarter of 2003. The remaining 33.35 exports, at the same time, declined 2.47 per cent compared to the same quarter of 2003. This quarter’s exports included carpets and rugs, petroleum products, sports gear, leather goods, surgical instruments, cutlery, onyx manufactures, footwear, chemicals and pharmaceuticals, and engineering products.The last three categories recorded an increase compared to the first quarter of 2003.

In order to counter the growing international competition, Pakistan is diversifying its trade both in terms of items and by finding new business partners in the Gulf, Middle East, Africa, as well as South and South East Asia, through multilateral and bilateral arrangements.

Pakistan, for instance, is quite upbeat over the prospects of increasing businesses with member countries of the South Asian Association for Regional Cooperation (Saarc)—Bangladesh, Bhutan, India, Maldives, Nepal and Sri Lanka.The Saarc has been in existence now for nearly two decades, but it has not made any headway in trade and other cooperation because two of its biggest members—India and Pakistan— have remained at loggerheads, a good part of this period. Although the political disputes involving them may not see the light at the end of the tunnel, but both now, finally,seem keen to expand trade.

Saarc representatives will meet at the Nepalese capital of Kathmandu this month to finalise the treaty to establish the South Asia Free Trade Area (Safta). If all goes well, although it seldom does, the SAFTA ought to be fully operational by 2005. If it does materialise, and member countries do take to enlarge regional business under this treaty’s auspices, it should offset some of the ill-effects that may accrue from the WTO regime, too, coming into operation at the same time. The Safta will also be a move forward from the present arrangement of the Sapta.

What are the trade growth prospects for the region, as well as its potential share in the global market place? Even after the Cancun collapse, WTO Director General Dr. Supachai Panitchpakdi sounds upbeat on trade growth for Pakistan, as well as the South Asian region and the developing nations. In these post-Cancun days, he chose Pakistan to be the first country to visit to elicit the support of “this very important country” to continue the global dialogue on agricultural commodities, the Singapore and Doha agenda and services. He discussed, this week, these issues with President Pervez Musharaf and Humayun Akhtar.

Panitchpakdi said, “At least 60 percent reduction in export and domestic subsidies by developed countries is necessary to provide market access to developing countries’ products. I am looking forward to a complete elimination of all trade distortions to provide a level playing field to all WTO member nations.” He is also optimistic regarding further negotiations as a result of which G-22 countries will put forward more productive proposals. He had specific advice, that equally is beneficial for other regional countries. For instance, he strongly recommended that Pakistan should not depend only on exporting raw materials, but it should move forward to ensure a greater value-addition. In the services field, Pakistan needs more investment, especially in IT as it has a large number of qualified professional personnel who can earn a lot for Pakistan while serving other developing nations.

As part of its diversification and value-addition programme, Pakistan is going ahead with the establishment of three “textile Cities” at Karachi, Lahore and Faisalabad, the later already known as Pakistan’s Manchester for years.

The South Asian region has an edge over several other areas in fields like farm products, livestock and fisheries as these are low-cost and competitive in global markets. “It means, South Asian countries need not practice protectionism in these products,” said Garrey Pursell of the World Bank at a seminar, in Lahore, on trade policies in South Asia.” South Asian countries, especially India, should reduce tariff protection in the interest of the region. The region’s countries need to fix support prices at the level that does not affect the export price and phases out subsidies on agricultural inputs,” Pursell also proposed.

Among the domestic steps, the SPB has announced it will continue concessional financing for exports. It will provide credit to banks at 1.5 per cent. The banks can add a maximum spread of 1.5 per cent, and provide export refinance at a maximum of 3.0 per cent.

All these moves are directed towards bigger foreign trade, and a larger share for the entire region.