December 25, 2006	Monday	Zilhaj 03, 1427

THE country’s economic managers cite ‘complexities’ and ‘distortions’ that are created in the economy for their inability to give subsidies to exporters. That’s news for the exporters who are going through the fourth straight year of surviving with major ‘distortions’ in the economic system.

For sometimes, exporters were getting Rs68 per one dollar based on the prevailing exchange rate plus a duty drawback ranging from six to eight per cent. The duty drawbacks were withdrawn at a very sensitive time after 9/11 when customers were already running away from Pakistan.

At the same time, the strengthening the rupee brought the rupee-dollar parity down to Rs57 per one dollar. This was a direct loss of 16 per cent for the exporters. Even today the exporters are off by nearly 10 per cent over 2001 without taking into consideration any other cost increase in the last five years.

This has also been recognised by the World Bank report “Pakistan Growth and Export Competitiveness” published in April 2006. It states, “…Pakistan can earn even greater competitive strength by taking additional steps to reduce the still high anti-export bias of 18 per cent”. This is serious distortion. But that’s not enough.

The inflation of the last four years is a millstone around the exporters’ necks and there is nothing they can do about it. In the domestic market, the day the price of an input or raw material increases, the seller immediately adjusts his price and passes on the increase to the consumers. Get the rate of main raw materials, minimum wage, electricity, gas and furnace oil of four years ago, deduct them from what the rates are today then add to it the 16 per cent loss mentioned earlier.

When State Bank governor says that the real interest rate in Pakistan is one of the most competitive in the region she assumes that the exporters are managing to get higher prices to offset inflation. The international market doesn’t pay for our inflation or our currency’s appreciation.

Fair economic policies are supposed to help all sectors of the economy. We don’t have such policies. For the last four years, we have a zero-sum economic policy where one sector’s gain is another sector’s loss. Imports boom and exports slump.

Not much has been done other than making committees, more committees and yet more committees to analyse the issue. The export sector would have appreciated if the government had said that if any export sector is not globally competitive, it should shut down. Verbally, this has been communicated to all export sectors that go to Islamabad seeking help but it would have been more appropriate if it were done as a matter of policy with a complete exit strategy for sick, or dead, export sectors.

Our economic managers assert: first, working capital is available at a subsidised mark-up rate under the export refinance scheme; second, under the State Bank of Pakistan’s LTF-EOP scheme, long-term finance is also available at a subsidised rate and, lastly, a six per cent Research and Development (R&D) subsidy is given to some export sectors. Armed with these three, the exporters are expected to compete in the international market.

And, on the domestic front, these subsidies are to balance off the adverse impact of withdrawal of duty drawbacks; revaluation of the rupee; four years’ inflation; no greater market access to the US or the EU; Pakistan’s negative image and travel advisory.

The snags would have major long-term consequences. These include (to name a few) efficiency and skill of our labour force, infrastructure improvement in rail, road, air and sea transportation and our managerial capacity. Important as these issues may be, but no one should cite them as the reason for the decline in our exports. Those who do so, just want the real issues brushed under the carpet.

In general, there’s hardly any difference between the business environment, working conditions and efficiency of labour force of Bangladesh, India and Pakistan. Even if there is any difference, it is only marginal. The main difference is the cost of doing business.

International buyers are price buyers. They take risks only when it comes to a good deal. An attractive price is the only carrot that would make them ignore the travel advisory and do business with Pakistan.

If these factors cannot be influenced or changed the government is absolutely right in ignoring exports and looking elsewhere for foreign exchange and getting used to living with a monthly trade deficit of more than $1 billion. It can only be termed as the triumph of our trade policy and not the failure of the export sector.

Unfortunately, for the exporters this has happened at a time when other countries in this region (India, China, and Bangladesh) are going through an export boom. Instead of battling with their competitors in the region, exporters here are fighting a losing battle against their own government.