TWO important sectors of the economy have floundered since 2013 — agriculture and exports. Taken together they account for approximately one-third of Pakistan’s gross domestic product. Accounting for the complete backward and forward linkages of these sectors with the rest of the economy, their share and contribution is far larger.
While a number of factors have led to the decline in agricultural output and export earnings over this period, including exogenous developments and trends, the lack of a coherent internal policy response by this government underscores a large part of the problem — the attitude of policymakers that these sectors will somehow, even without policy effort, manage to correct course on their own (or ‘automatically’) with improvement in the external environment.
Take the case of Pakistan’s exports. Over the past three years, export earnings have declined by nearly 20 per cent in US dollar terms, falling from $25.1 billion in 2012-13 to $20.8bn in 2015-16. Adjusting for exports under the EU GSP-Plus scheme, the decline is even larger. Overall, both textile (and apparel) as well as non-textile exports have fallen significantly. In terms of the major markets for Pakistan’s exports, the biggest declines over the period under review have occurred in the UAE, China and the US respectively. Exports to the EU and UK have remained relatively strong despite the headwinds created by the global economic slowdown.
Since 2013, exports from virtually all developing countries have taken a hit following the turbulence encountered by China’s economy. As the top destination for exports for an estimated 43 developing countries, including the likes of Australia, Brazil, South Africa, Korea and Taiwan, China has an outsized influence on exports of emerging markets. Hence, with China’s stumble, global trade, in particular exports from developing countries, has tumbled as well.
Pakistan’s export sector is shrinking from a low base.
However, this is only part of the story. While international factors have played a part in suppressing exports since 2013 from developing countries as a whole, within this cohort some countries have experienced larger falls than others. Hence, there have been changes in the relative market shares of developing countries in the principal export markets of the US and EU. Here too, Pakistan has lost out to Vietnam and Bangladesh in overall terms.
Finally, unlike Pakistan which has experienced monthly declines in export values almost continuously since December 2013, exports from India, Bangladesh, Taiwan and Vietnam have rebounded in the past few months — belying the official thinking and narrative that Pakistan’s dismal export performance is entirely a function of global factors. (Policymakers are keen to deflect attention from the 21pc appreciation of the real effective exchange rate since December 2013 — which in addition to blocked refunds and new taxes, has priced out the country’s exports).
The recent performance of the country’s exports dovetails into a larger — and worrying — picture of long-run stagnation and decline relative to other dynamic developing countries. While Pakistan’s market share of global exports is one way of looking at this, and which has declined from 0.16pc in 1990 to a paltry 0.13pc, the statistic that best captures our attention to exports and our ‘export-orientation’ is the size of the export sector as a percentage of the economy. Pakistan’s merchandise exports have fallen to a shocking 7.3pc of GDP — from a peak of over 15pc in the early 2000s. At this level, merchandise exports are today at virtually the same level as worker remittances into the country — and at their lowest level in decades.
The comparison with other dynamic developing economies is stark. Vietnam, the star export performer since 2000 along with India (and in a restricted sense, Bangladesh), has an export sector equal to 90pc of GDP. Cambodia’s is 68pc of GDP, India’s has grown to 23pc of GDP (from around 13pc in 2000), Indonesia’s is at 21pc of GDP. Even Sri Lanka’s export sector is now 21pc of GDP, while Bangladesh’s is rising fast and is currently at over 17pc of its GDP.
The worrying conclusion: not only is Pakistan the least export-oriented of all fast-growing developing economies, and has been for decades, but its export sector is shrinking from a low base. Why should this be worrying to Pakistan’s policymakers? First and foremost, exports have been used as a growth driver by every developing country since the 1960s, if not earlier. Not one single example exists of a major developing economy growing rapidly using any other growth model over the past four decades. Secondly, exports are needed to anchor the balance of payments of an import-dependent economy such as ours. And when, as I outlined in my previous column A Gathering Storm, payment obligations in foreign exchange are set to rise in the next few years, the importance of export earnings rises that much more.
(The importance of exports in a developing country’s development path is obvious. The fact that this question has to be posed and answered is a sad reflection on our policymakers’ priorities and a lack of comprehension).
What explains the phenomenon of an extremely low export base for Pakistan? The inattention to developing the export sector is rooted in decades-old policies and attitudes. Flows of concessional assistance became our ‘Dutch disease’ and numbed policymakers into complacency. Policy capture by low value-added players has compounded the problem. In addition, Pakistan has borne the brunt of the fallout of global developments since ‘9/11’.
No matter what the challenges, a country’s policymakers are tasked with fashioning a suitable response. This has not happened in Pakistan’s case, with everyone from the prime minister down to the finance and commerce ministers negligent of their responsibility. Once our exports lose global market share, recapturing the same will not be easy. More importantly, once the exporters turn their attention to other pursuits or relocate themselves, Pakistan’s loss will be irreparable.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.
Published in Dawn, September 16th, 2016