With regulatory measures to curb it virtually exhausted, the import of industrial raw materials/inputs is picking up, signalling the arrival of nascent economic recovery and widening the trade deficit. Wheat and sugar imports to meet domestic shortages or build strategic reserves are an added factor.

Once again imports, recorded at $5 billion last month, have begun to cater to the domestic demand with no notable progress in import substitution.

Instead, the duties on industrial raw materials are being gradually reduced. The prime minister’s advisor on commerce Abdul Razak Dawood says a study carried out by the ministry shows that when duties on raw materials decrease, industrial activities gain momentum and revenue collection also increases.

He stated that the real target of the country is to achieve sustainable growth in exports which is good one year and not the other year. And he adds: this can be attained only if, as the official study shows, the trajectory for economic growth is on the higher side for 10-15 years.

An under-valued rupee has resulted in adverse terms of trade and stepped up the transfer of resources abroad with the export of more goods fetching fewer dollars

On the basis of the actual performance so far during the current fiscal year, the outlook for manufacturing and exports seems a bit promising but challenges remain. The State Bank’s economic growth projection in the range of 2-5 per cent is subject to the downside risks of the second wave of the pandemic.

Large-scale manufacturing (LSM) output rose by 7.4pc during July-November on the back of sustained growth momentum for the third successive month. Exports grew at 4.9pc in the first half of the current fiscal year with an unusual surge in November and December. But the growth in both manufacturing and exports is not broad based. First, take manufacturing: of the 15 major manufacturing sectors, 10 recorded positive growth while five sectors contracted.

The LSM production in November swelled by 14.5pc, which, according to Planning Minister Asad Umar, was the highest in 12 years.

However, manufacturing has not yet reached pre-Covid-19 production levels. In November 2020, the output index improved to 147.3 points but was below the level of 160.2 recorded last March.

According to the latest monthly trends, in December exports surged by 18.3pc to $2.3bn but were outpaced by imports which soared by a little over 32pc to reach $5bn.

The trade deficit is mounting, notwithstanding the impressive surge in overseas workers remittances.

The domestic production of goods and services is generally not globally competitive nor sufficient to meet domestic needs nor diversified enough to reduce unsustainable imports. Together textile and clothing sectors alone contribute 60pc of the total exports. Figures for July-November show that exports of non-textile goods shrank year-on-year by 1.85pc.

The services sector exports grew year-over-year 12.9pc to reach $506.9 million in November, rebounding from a sharp fall of 25pc posted in October. In the first half of the current fiscal year, compared with the same period last year, the services sector exports dropped by 5.53pc to $2.158bn.

Pakistan’s policymakers and exporters need to take note of what innovation professionals say on the fast-changing export markets, as follows: “the operational environment for manufacturing industry is constantly changing, global competition poses new challenges; customers needs and values change, and developments in technology present new opportunities and threats for existing businesses. This continuous dynamic creates an imperative for companies and indeed the entire industry sectors, to be cognizant of the constant cycle of adaption and renewal.”

The above is an extract from a research paper presented at a symposium on ‘Innovation in Asian Century’ organised by Norway-based International Society for Professional Innovation Management (ISPIM) in Melbourne, Australia in December 2013. ISPIM was set up in 1983, as a community of members from research, industry, consulting and the public sector that shared a passion for innovation management.

Policymakers in Pakistan are taking credit for the latest two-month jumps in exports while pointing out that exports of India and Bangladesh have simultaneously fallen. Pakistan’s export grew by 8.32pc in November and 18.3pc in December 2020 compared to a year-ago period.

Bangladesh’s exports dipped by 5pc in December after recording a growth of 0.7pc in November. Though posting negative growth, India’s exports moved from a contraction of minus 9.07pc in November to minus 0.5pc in the following month.

Analysts point out that India’s export earnings in December amounted to Rs26.9bn which was more than Pakistan’s annual export earnings. Similarly, Bangladesh’s exports ($3.3bn) in the same month were 40pc higher than Pakistan’s exports ($2.35bn). The traditional approach to alternating stability and growth has not helped us prevent recurring boom and bust cycles.

An under-valued rupee has resulted in adverse terms of trade and stepped up the transfer of resources abroad with the export of more goods fetching fewer dollars. The rupee depreciation is also a significant cause of ballooning foreign debt servicing. Both are adverse factors for capital formation.

Dwelling on the growth prospects, officials claim that recovery has reached the pre-Covid-19 level.

A survey by the Pakistan Bureau of Statistics shows that a large majority (85pc) of the 20.76m workforce that had suffered livelihood losses returned to work after July 20 last year. On the basis of that data alone, the Planning Commission says it was almost a ‘V-shape ‘ recovery.

Enough job opportunities are unlikely to be created soon for absorbing apparently the 3.2m jobless — in the age group 10 and above — left to be employed at the beginning of this financial year. The organised sector was provided stimulus by the PTI government including subsidised credit for payrolls for businesses to retain their workers. The informal sector in both urban and rural areas including small enterprises remains excluded from such facilities. Many jobs lost in the informal sector, analysts say, may be permanent.

Perhaps Pakistan can learn something from how former ex-president Trump managed employment and inflation by defying economic orthodoxy. To quote American analyst Neil Irwin, former US President’s approach was vindicated. Irwin says “specifically, the jobless rate can fall lower and budget deficits can run higher without setting off an inflation spiral.” Similarly, inflation was lower while growth and employment rates were higher during the last PML-N government than now.

State Bank Governor Dr Raza Baqir told a foreign news agency that the market and the world would soon hear ‘good news that we are putting the (International Monetary Fund) programme back on track. With rising trade deficit the question arises: will it be a prescription for stability with growth?

Published in Dawn, The Business and Finance Weekly, January 18th, 2021