Pakistan and Pakistanis have always suffered and continue to suffer on many counts and in many ways just for one reason: the absence of a level playing field.
During the days of the last premiership of Mian Nawaz Sharif, between 2013 and 2017, goods’ exports were promoted with hundreds of billions of rupees worth of subsidies per year. No meaningful effort was made to promote services exports and remittances.
Freelancers and others associated with exports of IT and IT-enabled services cried for a level playing field but to no avail. Overseas Pakistanis, whose average annual remittances were closely chasing goods’ export earnings, cried for a level playing field, but nothing happened.
During the PTI government, between August 2018 and April 2022, Pakistan’s reliance on remittances increased, but the incentives offered for attracting remittances remained scant compared to the value of the incentives that remained available for goods’ exports. One good thing that the PTI’s maiden government did was to launch Roshan Digital Accounts for overseas Pakistanis, which helped bring in much-needed short-term foreign portfolio investment into the country.
Successive governments have ignored the low-hanging fruits of better incentivising IT, IT-es and official remittances
The PTI’s government also rolled out a policy for promoting services exports with lots of promises for exports of IT and IT-es but offered little practical help to services exporters. These exporters continued crying for a level playing field. Now, the caretaker government and the State Bank of Pakistan are making some good efforts to boost services exports, particularly exports of IT and IT-es. It is also incentivising freelancing not just for exports but also to help the educated class of jobless people earn a decent living.
The government and the central bank are also re-incentivising remittances amidst acute forex shortages. Principally, these are appreciable measures and can even meet their desired objectives at least partly if the policies rolled out recently are implemented in their letter and spirit — not just now but for years to come.
The problem, however, is that the policies aimed at boosting services exports are not part of a comprehensive framework that can guarantee an increase in goods exports at the same time. The incentives being offered for attracting increased inflows of remittances are not backed by any effort to remove growing confusion and misgivings in the minds of overseas Pakistanis about the country’s political future.
These incentives, the bulk of which are meant to encourage banks handling remittances, are quite attractive, but inflows of remittances are not growing chiefly because overseas Pakistanis have lately become too pessimistic about Pakistan’s political system. Besides, repeated frauds committed in various housing schemes have made many of them wary of investing in their homeland.
Meanwhile, a massive increase in gas tariff, ongoing hikes of electricity charges and hurried collection of petroleum development levy on petroleum products continue to make it quite difficult for general and export-oriented industries to survive.
Policies aimed at boosting services exports are not part of the framework to increase goods’ exports
The Karachi Chamber of Commerce and Industry (KCCI) and seven other trade and industrial bodies of the megapolis — all fear that the 86 per cent rise in gas tariff for export-oriented industries and 117pc increase for general industries may force many of them to slash their production to zero.
For commercial entities and the household sector, the gas tariff has been increased by up to 292pc. This will affect individual businessmen and all small and medium enterprises — the backbone of the domestic economy — and an essential part of the supply chain of export-oriented industries.
On the International Monetary Fund’s insistence, the imposition of the petroleum development levy on fuel oils recently became so consistent and speedy that revenue collection under this head skyrocketed 362pc in July-September this year from the same period last year.
This infamous levy, plus the exchange rate movement and movement in international prices of oil, jointly determine the extent of change in domestic oil prices. Between July and mid-September, repeated increases in fuel oil prices badly hit households and industries alike.
These cost-push factors, combined with growing political uncertainty, are bound to hurt the entire export sector, particularly goods exporting industries. Any gain in services export proceeds would be too little to compensate for an imminent fall in goods exports.
Just how real political uncertainty is can be gauged from the fact that Pakistan’s President Arif Alvi himself is not sure if elections will be held as scheduled in January 2024. Besides, the handling of PML-N supremo Nawaz Sharif’s return to Pakistan and how the establishment is pampering him has raised serious concerns about the transparency of the next elections — whenever they are held. The political temperature is set to escalate in the coming days and weeks.
Amidst such a politico-economic situation, it will be too much to expect overseas Pakistanis to send increased remittances back home. And it will be too challenging for goods export industries to export more.
Services exports, particularly exports of IT and IT-es, may ignore these negatives and start growing. But one must keep in mind Pakistan’s services exports ($7.3 billion in FY23) are equal to a little more than one-quarter of its goods exports ($27.735bn in FY23). So, even a significant 10pc increase in services exports in terms of percentage translates into just $730 million in volume.
Luckily, unlike goods external trade, however, the country books a relatively small deficit in services trade. In FY23, which ended in June, Pakistan’s services trade deficit stood at $719m, and in July-August this year, the deficit totalled just $169m.
One must hope that troubled merchandise exporters also get some meaningful incentives based on merit. This time around, prior to offering them any incentives, a system must be developed for utilisation and export efficiency audit.
Published in Dawn, The Business and Finance Weekly, October 30th, 2023