Trade policy has never been of much interest to informed analysts. Exporters are mainly concerned with tariff and tax changes. They are also keen to know the amount of public spending earmarked for the development of the export infrastructure. These, respectively, are the domains of the domineering and secretive Federal Board of Revenue and the Finance Division.
Commerce ministry is not necessarily on board, though the actions of the two announced in the budget predetermine the essentials of trade policy. What is left for the ministry is to provide some procedural endnotes and to utilise the Export Development Fund for inconsequential incentives.
Any space left is filled with lectures on social, environmental and other compliances. Planning Commission also has an export plan, but it fails to find a mention in the trade policy, serving as yet another proof of its continuing irrelevance.
This year’s policy is, however, different: Not for its content but for the explanations advanced for a dismal export performance and a massive trade deficit in 2006-07.
But first the boast, as painting things larger than life is now nearly part of the agenda of good governance. Following the statistical tricks perfected by the finance ministry’s jadoogars, the commerce minister happily announced that exports have more than doubled between 1998-99 and 2005-06 from $7.8 billion to $16.5 billion., an increase of 112 per cent.
These numbers do not mean anything unless expressed relatively to some useful aggregate. The usual suspect here is GDP. Now the government also claims a doubling of GDP during this period, which means that exports as percentage of GDP in 2005-06 were the same as in 1998-99, i.e. 12.9 per cent.
I make this comparison between these two years because the minister chose these years. But some economic official in the government might turn around to say that the comparison with 1998-99 is not legitimate because the GDP was rebased from 1999-2000. Comparison with years before 1999-2000 would be possible if the Federal Bureau of Statistics had done its duty to work the series backwards also.
Nevertheless, a comparison of the latest year 2006-07 with the base year 1999-00 does not indicate any significant improvement either. Over a seven year period, exports increased from 11.2 of GDP to 11.8 per cent of GDP, which works out at less than 0.1 percentage point of GDP per annum.
But the commerce minister wants us to feel happy that “This is the first time in the history of Pakistan that merchandise exports have crossed the barrier of $17 billion.” By the same token, it is also the first time that imports have crossed the barrier of $30 billion, in fact $30.5 billion to be precise.
In a properly contextualised way, these exports finance only 57 per cent of imports. In 1999-2000, when exports had not crossed any mentionable barrier, they financed as much as 83 per cent of the imports.
It should be obvious that the commerce minister has had to resort to special pleadings for the not very handsome trade numbers. But his analysis of how this severest of the trade balance has come about is a devastating critique of the macroeconomic policies followed since October 1999.
It also, not unlike the independent economists and observers, questions the sustainability of the GDP growth that is claimed to have taken place at an unusually high pace in the past 3-4 years.
His observation that the growth of exports has been lagging behind the high growth claimed for the economy is correct. There is a counter-claim that the growth of the economy has not been that high anyway and the claims are the handiwork of creative national accounting. Leaving that aside, the question is: if growth is not coming from exports, what are its sources.
The sources identified in the minister’s speech are the same as by many others. The main source is domestic consumption. A lot of it is cheap credit-financed; the inflationary chickens are now coming to roost. There are services, particularly telecommunications. Construction, not in the form of housing for the poor but large capital-intensive contracts resulting from public sector investment, is another source of growth.
This is not the way to sustainable growth. The commerce minister says as much: “It is a fact that higher growth levels of the economy can only be sustained by a rapid growth in exports; for example, a 7-8 per cent GDP growth is only maintainable through a 20-25 per cent annual export growth.” Such high export growth requires high manufacturing growth. But the recent GDP growth has not been driven by the manufacturing sector. Says the commerce minister: “the declining growth trend in the large scale manufacturing sector during 2006-07, from 10.7--8.8 per cent reduced our exportable surpluses.”
Finally comes the most damning indictment of the macroeconomic policies. According to the minister, these policies have made imports cheaper and exports expensive. There lies the explanation for the big hole in the balance of trade, which bothers everyone except the `Kashkol’ breakers.
The minister has now spilled the beans. His candidness must be acknowledged. Independent writers have been talking about the un-sustainability of the present growth process for quite some. There is nothing in it for the poor, the jobless, the sick, the illiterate, the children, women, Balochistan, FATA and rural areas. Like in the Titanic, the rich and the powerful are merrily dancing to the tune of “national interest,” unaware that the ship is sinking!
Dr Pervez Tahir is a former Chief Economist of Pakistan. He can be reached at email@example.com.