KARACHI, Dec 14: While the threat of huge trade imbalance is looming large, the exports dependency on imported inputs has touched a new peak.
A study conducted by the State Bank’s research department reveals that the contribution of imported inputs in total export level is 37 per cent.
“The contribution of imported inputs in total export level is 37 per cent, however, this impact would translate with one period lag,” said the working paper. The paper also provides the disaggregated long-run estimates of imports, which are 24 per cent for raw material and 16 per cent for capital goods.
The objective of the paper was to examine and estimate the long-run dynamics of the real exports and imports for the country.
The trade deficit during the first five months of the FY07 increased by over 17 per cent to $5.450 billion and the government is facing pressure to curtail imports.
“The curtailment of imports would surely reduce the trade gap but it will also hit the export negatively,” said analysts Abid Aleem.
Despite all efforts and increased supply of subsidised loans, the exports posted negative growth during July-October 2006-07.
Exporters argue that the high cost of production made their cost uncompetitive on the world markets.
“The high inflation is the real problem which keeps the prices of inputs higher as compared to regional countries which are our competitors,” said Abid.
The current monetary policy has curtailed the supply of credit to private sector but the policy also increased the cost of borrowing which adds additional cost to the manufacturing sector.
“The recent debate about the overvaluation of the rupee is also very much concerning for the industrial sector as the devaluation will increase the cost of imports and ultimately the export would be hit,” said researcher Imran Ahmed.
He said any devaluation of the rupee would increase the cost of imports, both the raw material and capital goods.
He said this was the reason that our exports never went up with the devaluation of the rupee.
“Those who argue that the rupee devaluation is must to reduce the trade deficit by increasing exports and curtailing imports, should not ignore the fact that imports have vital contribution for exports,” he said.
Analysts and economists suggested that there was a need to restructure the pattern of manufacturing sector and the products the country exports.
They said the import substitutes should not be exceeding 15 per cent while 20 per cent would allow the country to make fair deals with the countries exporting into Pakistan.
“The imported inputs for export means that import will always be high with the rise in exports and this cycle will continue till restructuring of the production pattern,” he said.
