The Analytical Angle: How data can help Pakistan fix its trade imbalance

Rigorous research needs to inform policy and public discourse if Pakistan is to capitalise on its geographic advantage.

Updated Jan 15, 2020 02:30pm

Pakistan has locked in a bailout package from the International Monetary Fund (IMF) and will receive $6 billion as part of the deal. This is the 22nd IMF bailout Pakistan has received.

However, the current account deficit driven by the trade deficit is still high. To extricate Pakistan from this cyclical dependency, the country must increase exports. In business terms, Pakistan needs to start clearing a profit.

Pakistan’s total trade volume amounts to $84 billion (as of February 2018) — that is the total sum of imports and exports crossing the country’s borders. Only roughly $23 billion of that is exports.

Pakistan is deep in the red and on a trajectory of increasing deficits.

Pakistan’s neighbouring countries in South Asia are doing better business. If we add up the total value of the exports of all countries in the world, Pakistan’s share has declined over time, from 0.16 per cent in 2003 to 0.12pc in 2017, according to the Pakistan Business Council. Meanwhile, Bangladesh’s share has increased from 0.09pc in 2003 to 0.24pc in 2016.

Pakistan's exports increased by only 50pc from 2005 to 2017, according to the World Bank’s Pakistan at 100 report. Meanwhile, India's exports of goods and services increased by 216pc, Bangladesh's by 250pc, and Vietnam's by 519pc.

Why is Pakistan’s trade balance increasingly negative?

A preliminary analysis of Pakistan’s low level of export is depressingly simple. While many countries would have dozens of categories of exports, Pakistan only has a few — all of which fit into the graph below.

Exports in the textile and food categories have declined, rice has marginally increased and exports of knitwear, bedwear and readymade garments has increased.

In fact, Pakistan’s Economic Complexity Index ranking has gone from 54 in 1980 to 94 out of 126 in 2017. This indicator measures how diverse the export base is as well as how common the goods the country exports are.

The larger message is that the categories are not changing. Pakistan is exporting the same things in 2018 as it was in 2014.

If we again compare the country to a business, we would be like a general store that was selling five products in 2014 and four years later had not broadened its offerings. If Pakistan does not diversify its exports, it is placing too much risk on a small number of commodities and losing out on opportunities to serve new markets.

This traditional analysis of trade data can reveal stagnation in trade that underlies the trade imbalance. However, it lacks nuance. It cannot tell us much about the cause-and-effect relationships that can suggest better trade policy.

Specifically, traditional analysis treats all firms within the sector the same, regardless of their performance. Productivity in the leather industry, for example, effectively stagnated between 2017 and 2018, however the combined — or aggregated — data averages out the fact that some leather firms did better and some worse.

In order to understand this firm-level heterogeneity — or in lay terms, why some businesses do better than others — we need firm-level data.

This data will help identify the high-performing sectors and industries and hence would eventually allow policymakers to identify the underlying constraints that inhibit widespread growth. This would, in turn, allow the provision of right incentives to divert resources away from inefficient firms towards efficient ones.

In-depth firm-level data would also inform policymakers on how to develop closely related sectors and identify new tradable sectors for investments.

Is it possible to collect such data?

It is. In the United States, the Longitudinal Firm Trade Transactions Database tracks firm-level data in a central repository and captures details on which firm sent what product (SKU, colour, size, etc.) to which firm in which country.

This data exists in Pakistan in disparate forms. Effective analysis would require collecting or merging it and making it available for analysis.

This should already be happening. Pakistan is a member of the Open Government Partnership, a consortium of more than 70 countries committed to substantive improvements in fiscal transparency, information access, asset disclosure and citizen engagement.

Yet, Pakistan has missed three deadlines to formulate and present a National Action Plan. The current government came in on a mandate to increase transparency so it is imperative that it make data public for analysis and consumption.

Furthering the argument on increasing domestic efficiency, evidence suggests that innovation is spurring average productivity globally and firms in Pakistan can achieve much more with the same resources by innovating in the right dimensions, industries and sectors.

The Sialkot soccer ball cluster is made up of a large number of manufacturers who export approximately 60 million hand-stitched soccer balls each year, accounting for about 70pc of global production.

Over several years, the amount of soccer balls produced in Sialkot declined. However, a randomised controlled trial housed at the Centre for Economic Research in Pakistan showed that new technology reduced material costs by 6.9pc and a new incentive scheme increased probability of technology adoption by 32pc.

This study required researchers gathering the data themselves, but on a larger scale, firm-level analysis can uncover the underlying features and drivers which would accelerate exports and boost domestic productivity.

Even if some firm-level data is captured in Pakistan, it is typically not released publicly for independent rigorous analysis by researchers and think tanks. The Census of Manufacturing Industries, for example, includes a wealth of data useful for analysing trade and informing policy. However, the 2017 census has not been approved for release.

The government should open up its firm-level data to researchers and the public.

Much to gain

The opportunities for Pakistan to increase its exports are staggering. This can be clearly seen by examining Pakistan’s trade with its closest neighbours.

Even though India and China are geographically separated from Central Asian countries, they do a much higher volume of trade: China at $21 billion and India at $364 million in 2017, compared to Pakistan’s $81 million.

This is particularly astounding given that some the highest value trade is with your neighbours. Dushanbe — the capital of Tajikistan — is 420 kilometres closer to Islamabad than Islamabad is to Karachi and yet Pakistan’s export to Tajikistan only amounts to $8.6 million (2017).

While Pakistan’s recent visit to Central Asia in a bid to increase regional trade is a welcome gesture, a deep dive into export goods and markets using firm-level details would allow policymakers to make the most of the opportunities this geographic location has to offer.

Customers will not patronise that general store that sells only five products, no matter how close it is to their doorstep. Pakistan needs to diversify exports to serve these new markets, and to do that we must answer this question: How can trade policy optimally allocate resources to diversify, serve new markets and help the existing industries to scale?

Not only can export firm-level data answer this critical question, it can also delineate the optimal spatial distribution of firms within Pakistan to minimise transportation costs.

There are a number of other fundamental trade questions that would further enrich trade analysis for policymakers especially given the improvement in trade infrastructure with the China-Pakistan Economic Corridor (CPEC).

How do CPEC-related infrastructure development projects help reduce trade costs for firms in central and northern areas? How does it help Pakistan’s trade to Central Asia and enable export growth? What analysis led to financing certain projects versus not financing others?

Rigorous research needs to inform policy choices and public discourse if Pakistan is to fully capitalise on the geographic advantage and exploit the CPEC infrastructure investment.

In Pakistan, successive governments have well-intentioned policies based on anecdotal evidence with far-reaching implications. Opening the data and allowing independent analysis can help craft more effective trade policy, boost regional trade and drive export-oriented growth in Pakistan.

Composite by Marium Ali

The Analytical Angle is a monthly column where top researchers bring rigorous evidence to policy debates in Pakistan. The series is a collaboration between the Centre for Economic Research in Pakistan, Evidence for Policy Design at Harvard Kennedy School, and The views expressed are the authors’ alone.


Author Image

Maroof Ali Syed is the CEO of the Centre for Economic Research in Pakistan. He is also a Senior Fellow at Harvard’s Evidence for Policy Design programme and the 2017 recipient of the Lucius N. Littauer Award from the Harvard Kennedy School. He tweets at @MaroofAliSyed

Author Image

Maha Rehman is an Analytics Specialist and has almost a decade of experience in designing and executing evidence-based programs, products and policies to improve service delivery and impact. She teaches at Lahore University of Management Science and is also a Pakistan Acumen Fellow 2016. She tweets at @MahaRehman1

The views expressed by this writer and commenters below do not necessarily reflect the views and policies of the Dawn Media Group.

Comments (21) Closed

Jul 23, 2019 11:02am
Excellent data analysis
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Jul 23, 2019 11:19am
Very informative. I think we need to diversify our Products by selling finished products instead of the raw material. We are selling cheap leathers yet we don't have any well renowned franchise for Hang bags, Jackets and Shoes. We will sacrifice one of the largest number of cows, camels and goats yet when searching for good halal food supplier you will find countries like New Zealand. Come on at-least Halal industry should be owned by us. Apart from the export sector, our governments have failed to gather an attention for the cheap labor industries so far. Our cheap labor can also help manufacture for the tech giants.
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Hassan Jamil
Jul 23, 2019 11:23am
This is a good analysis and I hope the government has this information for better decision making. On the other hand, we should also look at reducing barriers faced by exporters and strive to make the whole process easier and simpler so that more people can take advantage of a higher exchange rate on a smaller scale, which will definitely help uplift Pakistan's economy.
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Sayyed Zakir Ali Rizwe
Jul 23, 2019 11:34am
Decent article Maha & Mahroof. But we expect from the Pakistan Center of Economic Research then a historical collection magnifying the undoings of the past vs. what we can do today to make it better ahead. Suggest it would be good if you in hindsight identify what practical measures the GoP should undertake moving forward on this, identify key stake-holders and office bearers (public, private, regulators); pl open up more on research, it is an untapped area, Pakistan out-numbering India by 20% on published per-capita research is in a great position to exploit the potential; how data turned profitability for emerging markets? framework, GoP needs to embrace and most importantly how to build & extend knowledge economy, trumpeted heavily for many years by Dr. Atta
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Jul 23, 2019 12:24pm
This article could have done justice by also re-evaluating Pakistan's competitive advantage as it seems the Govt is not doing enough to do research, make policy & incentivize new export areas and assess the cost competitiveness is in which sectors and not the same old sectors of textiles or agri.
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Ahmed Hanif Lakhani
Jul 23, 2019 12:27pm
in simple words, a country that exports towels and banyan (vests) as its main exports cannot hope to import cars or car parts. sooner or later, the exchange rate will catch up which has happened and goods such as cars have become more expensive
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Jul 23, 2019 12:53pm
Good analysis focusing on exports. However at the same time there is a need to identify which unnecessary items are being imported which are or can be manufactured in Pakistan. Policies should be put in place for local substitution which will help balance trade and will also trigger economic activity within the country..
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Jul 23, 2019 12:55pm
Excellent analysis. Enlightened numbers. Analytical masterpiece. How to achieve? No solution given. Even any kid will tell you all this in so many words.
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Tahir Hussain Hashmi
Jul 23, 2019 12:59pm
i am in Pharmaceutical Export division, i expect Pakistan export shall increase b any means and government shall take initiatives to facilitate exporters and call on meetings with big companies of diverse specialties. government shall speed up the regulatory process if they want to enhance pharma exports which shall be long lasting and helpful for Pakistan
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Aqib Nuhullah
Jul 23, 2019 01:58pm
I completely agree with you on this regard. Being the financial analyst myself, I understand the importance of accurate data. I have been researching on this topic for a quite a while now and I believe, for Pakistan, to understand its fundamental trade problems they first need to find the accurate data of its imports and exports and then analyze it thoroughly. Currently data which is presented to the Government is often manipulative and inaccurate which further impacts the decision making process and in the hindsight economy of the Pakistan.
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Jul 23, 2019 02:02pm
Does LFTTD operates at global arena?
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Jul 23, 2019 02:40pm
Wow. Does anyone expect any private or government body to produce accurate and relevant data, seek it and use it aptly? Pakistan does not have that calibre. It’s businessmen are essentially all with a mentality of sadar bazar traders and don’t think beyond and big. Bureaucracy and politics has been so damaged by the establishment that none is wise enough to think even two years forward forget 5-10 years. That is why five year plans so successful in India and Bangladesh never worked in Pakistan.
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Jul 23, 2019 02:46pm
An informative article that raises good points. Well done to the writer. One hopes these sort of analyses can become part of decision making in Pakistani policy-making circles. One glaring error - China is not really “geographically separated” from Central Asia. It borders a number of them and has pretty good access. India and Pakistan have to go through other countries (Pak and Afghan respectively) to get there, which complicates things massively.
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Zulfiqar Ali
Jul 23, 2019 04:02pm
It is so difficult to export something from Pakistan that sometimes it becomes a nightmare. A relative of mine sends some raw apricot oil to Germany at good price. When his annual time of export come he falls ill just because he cannot have a licence and other licence holders exploits him. Why we cannot learn from China, where sells everything produced in China made by any big or small firm/individual to anyone and anywhere in the world. Why we don't our systems simple and export friendly? We want to increase our export base but without including the small producers? Are our export subsidies and supports limited to big exporters only and will remain so, and will we keep on dreaming to increase our export base without changing ourselves?
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Noman Ahmed Junejo
Jul 24, 2019 10:19am
All good but what to do, even all these nos are worthless if we do not have the will. Which I do not see.
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Human Being
Jul 24, 2019 12:08pm
Let's be realistic don't compare India with Pakistan neither should India compare with China in trade.
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Jul 24, 2019 12:28pm
Thank you PML-N for export decline.
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Jul 24, 2019 04:25pm
This type of data in private hands is dangerous. Imagine India using the same data to pull back our export by subsidizing its export.
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Jul 24, 2019 05:19pm
Unable to disclose the product line our companyis developing right now. Just mentioning it, because the same product line we have been importing in for last three years. Bu now we are coming up with our own line of products. This will save the import bills, also it will create an opportunity to export goods in future.
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Jul 25, 2019 03:01am
Good article and the right attempt at looking at the problem with a different set of lenses. However would also like to know which are the potential areas of economic activity that Pakistan business community should venture into to increase the so called basket of export products. A link from the world of data analysis to the real world application is key here.
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tony hussain
Jul 25, 2019 05:06am
Excellent article. Thanks for sharing. In USA we are building out modern data architecture to accommodate new analytics requirements, larger data volumes and taking advantage of newer technologies such as cloud, data lakes and data streaming. These platforms make it possible to support digital transformation with modern analytics, delivering new services empowered by data and AI, as well as advanced data analysis and science. Glad to see that in Pakistan - The importance of Data and Analytics are gaining traction...
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