Incentives in the works to diversify exports

January 24, 2020

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The incentives will be part of the new Strategic Trade Policy Framework (STPF) expected to be finalised in the next couple of months. — Reuters/File
The incentives will be part of the new Strategic Trade Policy Framework (STPF) expected to be finalised in the next couple of months. — Reuters/File

LAHORE: The Imran Khan government plans to introduce significant time-bound, structured fiscal incentives and protection for 20 industries other than the five zero-rated sectors besides ensuring their easier access to cheap short- and long-term finance for diversifying and boosting the country’s stagnating exports.

The incentives will be part of the new Strategic Trade Policy Framework (STPF) expected to be finalised in the next couple of months, Commerce Secretary Ahmed Nawaz Sukhera told Dawn on Thursday.

"The government is looking beyond the five zero-rated export sectors including the textile. It is time we also focused and facilitated industries like light engineering, chemicals, IT, etc with substantial potential to diversify and increase our exports," he said.

"Textile industry does have the potential to enhance its foreign sales but it can push our overall exports only so much. We need to encourage other industries with untapped potential."

Pakistan’s trade gap has shrunk 31pc to $11.6 billion in the first half of this fiscal year to December, primarily on the back of 17 per cent compression in imports, which dropped to $23.2bn. Meanwhile, exports have risen by a mere 3.2pc to $11.5bn despite steep currency devaluation during last one and a half years and energy subsidies given to textiles, which fetch 55-60pc of the country’s total proceeds from foreign sales.

Strategic framework will look beyond traditional zero-rated export sectors

According to a World Bank report, the country’s share in the global exports has declined from a peak of 0.18pc to 0.13pc in 2018 with the bulk of them are resource-based or commodities.

"We are moving in the direction of export-led economic growth and away from import substitution policies. The global experience shows that you cannot pursue both export growth and import substitution policies simultaneously; so we have decided to increase competitiveness of our industries with export potential," Sukhera said.

The stabilisation on the external front in the recent months has created room for the State Bank to help exporting industries, and enhance the financing limit for exporters though its subsidised loan schemes — Export Finance Scheme (EFS) and Long Term Finance Facility (LTFF) — by Rs100bn for the full year.

Under EFS exporters are eligible to receive short-term loans at 3pc to meet their working capital requirements while LTFF caters to their needs for long-term funds to import machinery and plants. For the textile sector, LTFF is available at 5pc and for others at 6pc.

SBP Governor Reza Baqir, who has repeatedly underscored the importance of increasing exports to pull the country out of the frequent boom-and-bust cycles, says the scope of these schemes will be extended to more industries and sectors with export potential.

Experts say the current account stability based on massive import compression is hurting the industry and could backfire if exports are not increased substantially and swiftly. The current account deficit has squeezed by 73pc in the first six months of this fiscal year.

The commerce secretary said his ministry was evolving an "integrated approach" for export promotion. "We want every stakeholder on the same page; the STPF will be finalised after extensive consultations with businessmen, relevant ministries and the Board of Investment so that every future policy and action is aligned with the single goal of export diversification and growth. The management of special economic zones, for example, will be given targets to attract investment in the 20 industries/sectors we have identified for boosting our foreign sales."

According to him, the focus of the new national tariff policy was to industrialise the country, and cut the cost of imported raw materials and intermediary goods used by exporters for value-addition rather than raise revenue for the Federal Board of Revenue. Similarly, the new industrial policy, the small and medium enterprise policy, export and import orders, etc will all be integrated in such a way as to assist export of value-added goods and services.

Published in Dawn, January 24th, 2020