ISLAMABAD, April 2: The lack of export diversification — for products and markets — is the main reason for recent sluggish performance in Pakistan’s merchandise exports, said Asian Development Bank report.
Trade policy should therefore focus on developing strategies for diversification and enhancing export competitiveness. There is also a need to devise a comprehensive policy for increasing production of various products, which currently is highly concentrated on textile products.
According to the report, Asian Development Outlook 2007, Pakistan’s textile export prospects could further weaken in the wake of abolishing of China specific safeguards in the year 2008 imposed by the US and EU against textile and clothing imports.The main issue is exports’ heavy reliance on textiles as well as limited geographic diversification. Between them, textiles and clothing, cotton, leather, rice and sports goods account for over three quarters of total exports. Thus a downturn in these segments has a significant overall impact.
Conversely, immediately after the ending of quotas, textile exports accelerated strongly, to 16.8 per cent in fiscal year 2006 from 6.6 per cent the year before.
Increasingly, however, textile exports have come under competitive pressure from Bangladesh, China and India, specifically in the higher value-added categories that have traditionally not been strength of the Pakistani textile sector. This pressure, in turn, has led to a fall in international export prices.
Consequently, Pakistani textile exports increased by only 4.3 per cent by value in the first half of fiscal year 2007. The low expected local cotton production in 2007 and removal of restrictions on textile exports from China in 2008 will further hit Pakistan textile exports.
Similarly, the export of rice grew by 1.2 per cent during the period under review. However, export of leather and its products dipped by 26.3 per cent and sports goods by 14.4 per cent, respectively.
Another issue is that the bulk of Pakistan’s trade is with a handful of countries, particularly in Europe and North America. It is expected that the growth in trading volumes in those regions will decline in 2007, hitting Pakistan’s exports there.
Exports too will rise, but the high domestic cost of production in the textile and garment sector as well as stiff competition from the China and India is likely to restrict total export growth to about 8 per cent.
Over the past five years, merchandise exports have delivered over 12 per cent average annual growth, as they have benefited from an enabling policy environment, low inflation, the low cost of credit, and general upturn in economic activity.
In fiscal year 2005 and 2006, they grew by 16.6 per cent and 15.4 per cent, respectively, but started decelerating in the second half of fiscal year 2006, to just over 6.5 per cent, and to 5 per cent in the first half of fiscal year 2007. Some of the deceleration stems from the high base effect, but the underlying causes appear structural, added the report.
