IN the current economic situation, GSP Plus was a much needed opportunity for providing a boost to the economy through increasing exports and improving Pakistan’s balance of trade with the EU.

Unfortunately, some factors are having a negative influence on the export potential accruing from the grant of GSP Plus in particular, and on economic development in general.

Most of the key problems restricting economic growth targets have become chronic. These include critical shortage of electricity and gas, deteriorating law and order, trade deficit and negative balance of payments.

While our hands are full trying to resolve these issues, the recent volatility in the rupee’s value has created ripples in our trade, commerce and industrial sector.

The revaluation of the currency is a good indicator. But when competing in a global environment, one also needs to watch how to face key competitors, and the cause and effect of such drastic developments on our economy, which is in a state of fragile recovery.

The Indian central bank in the last quarter (January to March) steadily revalued its currency by around 2.4pc while projecting further revaluation by Rs2-3 in the coming two to three months. This steady pace would enable Indian importers and exporters to adjust their positions and continue business at a normal pace, and help other segments of the economy to benefit from such measured steps.

However, in Pakistan, after the unprecedented currency revaluation, exporters started facing difficulties in the international market, while importers — carrying stocks of inventories and contracts — were caught in the middle with such a volatile exchange rate movement.

China, in an effort to encourage its exports, recently devalued the yuan by almost 3pc. The net effect of recent yuan’s devaluation and the rupee’s appreciation on our economy would be increased imports and decreased export prospects with our neighbour. Keeping the bilateral business volume intact, this import-friendly environment will surely hurt our local industries in times to come.

In the textile sector alone, the government estimated an increase in exports of $370m to the European Union in one year. But now exporters may even find it difficult to sustain their current positions and compete internationally due to the sudden decline in their sale prices, with the prices of key elements of their production unchanged.

To capitalise on the currency’s revaluation, it is imperative that the cost of electricity, gas, fuel, and other key variables that affect the cost of doing business for industries must be reduced in proportion to the appreciation of the rupee, as they were increased in the past due to earlier depreciation.

In simple words, if not precisely managed, our economic wheels will become more import-oriented, raising multiple problems, like an uncompetitive domestic industry, fall in domestic investment, and a worsening negative balance of payments.

Our traditional competitors — India, China, Sri Lanka and Bangladesh — have improved their export base as compared to Pakistan in recent years. Bangladesh posted a staggering export figure of around $27bn, owing to the consistent, business-friendly policies of its government, and its effective use of the preferential status for exports.

The GSP Plus incentive was supposed to increase our exports by $700m to $1bn per annum, but compliance with preconditions is bound to increase the cost of doing business, and in the current scenario, might prove counterproductive.

A surprisingly increase of Rs2.5 per unit has been made in the electricity tariff by the government, instead of a due decrease. Other costs, such as wages, gas and fuel still remain at the post-rupee appreciation levels, making business uncompetitive. All of this may turn the much sought after GSP Plus into a GSP Minus.

In the aftermath of this scenario, different trade bodies like the All Pakistan Textile Mills Association and the Pakistan Cotton Ginners Association have started requesting the government to impose duties on import of cotton yarn by government and lifting the cotton stock lying with ginners by the Trading Corporation of Pakistan.

Such demands, if accepted by the government, might create an atmosphere of unfair competition.

If the rupee appreciation and rise in cost of doing business continues, it might also affect our vast agriculture sector, as two out of our four main cash crops — cotton and rice — are either directly exported or indirectly purchased by exporters. Sugarcane and wheat are also important parts of this chain.

(Latest: The government has imposed 5pc import duty on yarn.)

The writer is executive director of Artistic Towel Mill