July 06, 2006	Thursday	Jumadi-ul-Sani 9, 1427

ISLAMABAD, July 5: The Pakistan Institute of Development Economics (PIDE) -- a think tank of the government on economic issues -- has advised the government to abolish export financing and instead utilise the money in productive manner for increasing country exports.

Pakistan has made several policies for the last 60 years for the promotion of exports. Export financing and rebate were one of those policies. It was observed that some people have taken some advantage of these schemes in the short run but in reality it did not help in boosting country’s exports in the long run.

The research report came at a time when textile tycoons were seeking a Rs50-billion package from the government for subsidising their commercial loans, reducing utility and other costs.

In a joint research report titled "Impact of exports financing and rebate scheme on exports of Pakistan", researchers PIDE Director Dr Nadeem-ul-Haq and Ali Kemal have pointed out that the export financing scheme has negative impact on enhancement of exports in the long run, while duty drawback has positive but insignificant impact on the long run.

Moreover, both the schemes have insignificant impact on the short run while analyzing trade statistics of the country during the past years. The analysis of the statistics showed a continuous increasing trend in exports and a continuous decreasing trend in export financing as percentage of exports, which implied that majority of the big exporters were not using the export financing scheme.

Similarly, the analysis in the report indicated a downward movement in rebate as percentage of exports and upward movements in exports, which implied overall negative association between the two variables.

The report pointed out some loopholes in these schemes. For instance a person could ask for Rs15-million irrevocable letter of credit to his/her friend abroad and claim rebate on that and did not send any exports. There was no strict check whether an exporter exports anything or not and he/she could claim rebate on a piece of paper, the report said.

The researchers suggested that keeping in view the era of globalisation, the rebate scheme would be called off when tariff rates were zero. The objective of the rebate scheme was to provide raw material and intermediate goods for industrial production at zero duty, which would be possible by reducing the duty to zero on all those commodities which were directly or indirectly used in the industrial production.

"Our exchange rate is overvalued, which is creating problems for the exporters. Moreover, it is one of the main reasons that we are having huge trade deficits this year," the researchers said.

Usually, real exchange rate is the main indicator of competitiveness of exports in the work market but it has been overvalued since independence in Pakistan.

They suggested that exchange rate be allowed to move freely with the changes in exports and imports of the country so that there was no need to make such policies where government needed to subsidise from its own funds.