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Export incentives

January 12, 2017

THE prime minister’s announcement of a package of incentives for textile exporters is perhaps generating more optimism than is warranted. The size of the package, as calculated against the foregone revenue for the government, is large indeed, but it would be a mistake to think that this is money being pumped into the ailing sector. In fact, on closer examination, the package appears to be designed in haste. For one, the textile sector remains internally divided between the spinners and the so-called ‘value added’ sector, comprising garments and other segments, and the impact of the package will be different on each. An export incentive in the form of a 4pc rebate given to spinners, for example, could end up raising the cost of yarn for the value added sector by the same amount, which could inhibit value added exports correspondingly. As in previous such meetings, the spinners’ lobby appears to have carried the day simply by virtue of being the largest. The duty drawback reduction also appears to be built in such a way that the eventual payout, should an exporter meet the target of raising export orders by 10pc from last year, will come in July 2018, by when there is likely to be a caretaker government in power which may or may not honour the terms of the package.

In so many ways, the package betrays a near total absence of thought. Pakistan’s exports have been dropping for 10 consecutive quarters now and if this package is the best thinking the government can come up with to tackle the problem, which is a broad based one and not specific to industry, then it shows the lack of depth in their thinking. All that has happened is that the government has postponed dealing with the core issue raised by exporters: the expedited processing of tax refunds stuck up by granting all other demands that don’t carry a cash payout but have an impact on future revenues. If the thinking going into this package is at all serious, we should see a corresponding set of revenue measures designed to offset the revenue impact of the package, given that the fiscal framework is already coming under serious stress. But simply agreeing to everyone’s demands, so long as the demands involve no cash payout, smacks of expediency more than serious policy thinking.

Published in Dawn January 12th, 2017