In nine months of this fiscal year, ie between July 2021 and March 2022, Pakistan’s overall exports, including the exports of goods and services, fetched $28.855 billion. During the same period of last year, overall exports had earned $23.117bn, according to the State Bank of Pakistan’s Balance of Payments (BOP) statement.
The year-on-year growth of 24.8pc is heartening.
But the problem is that while exports were galloping, imports were not strutting. Within nine months of this fiscal year total imports, including those of goods and services, consumed $62.131bn — against $44.409bn last year. This means overall imports grew faster than overall exports—by 39.9pc to be exact. That paled all the gains made in exports.
From the point of view of managing the country’s overall external account, large gains made in exports mean little if imports outweigh them. Because at the end of the day the country has to pay more foreign exchange on its trade account than whatever it receives.
Export earnings from China increased from $1.21bn in 2010 to $2.04bn in 2021, whereas imports shot up from a fairly large amount of $3.28bn to a mind-boggling sum of $13.3bn
So, why don’t Pakistan’s exports grow in a fashion that their growth does not have to rely heavily on imported materials? Or is it that the overall exports bill balloons more due to larger foreign purchases of finished goods and less due to imports of inputs of export-oriented industries. Well, in Pakistan’s case, both factors continue to push imports up. And, the solution lies in producing more value-added, thus pricier export products so that even a small growth in exports can lead to big value gains.
When it comes to boosting exports, identification of potential markets, developing new lines of products, focusing on existing markets and existing products, improvement in manufacturing processes to produce quality products and acquiring the leverage for charging a higher average per unit price — all matter. Pakistan needs to do it all at once to increase its export earnings.
The country can do this if exports get the early attention of the new government, changes are introduced at every level of policymaking and institutions that implement the policies are reinvigorated. A mechanism needs to be developed to seek greater input from provincial governments and the private sector representatives in the framing of trade policies.
In 2020, total exports made up 10% of GDP when the global average was 26.5pc of GDP
And the board of the Pakistan Trade Development Authority (PTDA) must be reconstituted to include more representatives of the private sectors and experts on specific lines of exports. A federal governmental body needs to be set up for promoting services exports along the lines of PTDA with due representation of the private sector leaders in services exports.
Pakistan’s overall exports, as a percentage of its GDP, are far below what they should have been. In 2013 the country’s total exports, including exports of goods and services, were equal to 13.3pc of GDP. Then, they fell year by year and sank to 8.3pc in 2017, according to the World Bank stats. From there, the situation started improving and in 2020 total exports made up 10pc of GDP. This is obviously a very low share of exports in GDP. (Global average was 30.3pc of GDP in 2013 and 26.5pc of GDP in 2020). This means not enough attention is being paid to penetrating deeper into existing export markets and to the manufacturing of more value-added items of existing product lines.
Back in 2010, the list of our top export destinations, according to volumes of export earnings, included (1) USA (2) UAE (3) China (4) Afghanistan (5) UK (6) Germany (7) Bangladesh (8) Spain (9) Belgium and (10) the Netherlands.
Unfortunately, in the next 11 years Pakistan could not make dramatically large gains in export earnings from any of these countries — except China and the US, a comparison of the State Bank of Pakistan (SBP) data for 2010 and 2021 reveals.
In the case of China, export earnings increased from $1.21bn in 2010 to $2.04bn. That’s it. And, when we look at the volumes of imports from China they shot up from a fairly large amount of $3.28bn in 2010 to a mind-boggling sum of $13.3bn in 2021. Pakistan could have increased its exports to China to new heights year after year during these 11 years but that did not happen. There is an urgent need, therefore, to seek trade concessions from China and prepare our enable our exporters to produce more and better quality items for Chinese markets.
Though Pakistan has not been able to push its exports as high as it could in the US markets, its total exports to the US which stood at $3.56bn in 2010 gradually went up to $5bn in 2021. What is more commendable is that Pakistan’s exports to the US continued rising despite all the fillip-flops in political and diplomatic relations between Islamabad and Washington. And, what is even more heartening is that Pakistan now actually runs a trade surplus with the US. (Our imports from the US in 2021 stood slightly below 2.5bn), SBP stats show).
After Covid-19, when the freight cost of foreign shipments has skyrocketed due to higher insurance and container charges, it makes all the more sense for developing countries like Pakistan to engage in trading with neighbours. If stalled trade relations with India resume, if trading with Iran goes into high gear — and if the Taliban government in Kabul is accepted by the international community and Afghanistan starts growing economically, Pakistan’s exports to these countries can add a few billion dollars to its total export earnings within years.
But easier said than done, these issues are complex and need a regional and global shift in policy for their resolution. In the short-term, export earnings can be increased by services exports and by exporting more value-added items of the existing range of products.
Published in Dawn, The Business and Finance Weekly, May 2nd, 2022