KARACHI: Pakistan’s widening trade deficit is a result of premature deindustrialisation as the role of manufacturing in the economy has declined to 12.1 per cent in the last fiscal year from 17.5pc in 2005 lagging behind India, Bangladesh and Sri Lanka.

The declining manufacturing which is riddled with taxes compared to the region has resulted in ‘growing trade deficit and recurring cycles of external account crises’ increasing economy’s dependence on bilateral borrowing and International Monetary Fund (IMF) bailouts, says the PBC’s report titled ‘Contours of a New Industrial Policy’.

The council calls for a fresh industrial policy in order to ‘promote employment, value-added exports and imports substitution’ to reverse the worrying trend of deindustrialisation. Pakistan can leverage the 200 million consumer advantage to make a push for ‘Make-in-Pakistan’ thrust to achieve these objectives.

Pakistan’s trade has been negative since the last 15 years in tandem with the trend of deindustrialisation stressing country’s reserves. The trend has forced succeeding governments to seek foreign funds to avoid balance of payment crises.

The report suggests setting five-year targets in the industrial policy to increase contribution of manufacturing to GDP to 25pc, manufacturing goods’ contribution to the exports to 85pc, investment to represents 30pc of the GDP and increasing the share of exports to 12.5pc of the GDP.

These targets, the report highlights, can be achieved by aligning policies in the trade, fiscal, energy, agriculture, labour and the capital markets. The stimuli to achieve the targets can be instigated by drawing a framework which inculcates tax and trade policies so they can complement each other to create an enabling environment for the industry and investment.

The report presents a list of ‘general policy enablers’ to help achieve the desired targets. These include cascading import duty on raw materials, low duty on intermediate items and higher duty on finished goods, preferential access to partner countries, strengthening the National Tariff Commission, developing an equitable fiscal policy, provision of energy, promoting foreign direct investment, improving ease of doing business ranking, skill and labour development, promotion of small and medium enterprises, and promoting standards and sustainability through responsible environmental practices.

Published in Dawn, November 28th, 2018