Both exports and imports improve, brightening prospects of meeting the target for the fiscal 2002-03, which if it does happen will mean that Pakistan is not a lagger in foreign trade. The situation also has improved prospects of a larger business volume to benefit Pakistan’s foreign trading partners.

The latest official statistics indicate imports rose by 18.71 per cent during the first half of the fiscal 2002-03. The overall imports totalled $5.79 billion during the period. A large quantity of imports included machinery, industrial raw materials and other non-food, and non-oil products. Their demand rose as the domestic economy is slowly picking up. A large quantity of exportable surpluses is being created as exports are on the rise. A substantial quantity of the imported inputs are processed into these exports.

Actual imports in the fiscal 2002 were $10.335 billion while the projection for 2003 is $11.1 billion — plus 7.4 per cent as compared to the actual imports in 2002. However, if the present trend in imports continues, and exports also go on rising, the year may close on June 30, exceeding the projection. Actual exports in 2002 were $9.1 billion. Exports during the same six months also rose impressively. At $5.2 billion exports were right on target to close the year with the projected level of $10.4 billion — an all time high for Pakistan. But business analysts are projecting the exports in the fiscal 2003 to cross $11 billion mark, in case the present trends continue and there are no unforeseen problems.

It is rare in Pakistan’s foreign trade history to stay right on target, as for instance exports rose only to $9.1 billion, nearly a billion dollar short of the target, during the fiscal 2002. But, businessmen and the government point out 2002 exports suffered in the aftermath of 9/11, when a number of the United States and European importers had cancelled their orders. It had happened when Washington started operations against Afghanistan soon after 9/11. Alleged fears of that war spreading and trade flow disruptions had also resulted in imposition of considerable increase in freight and insurance costs.

But, since then, things have considerably changed for the better for Islamabad. All the basic items and those being particularly pushed are currently increasing according to the projected export targets. Except for September 2002, all the other five months in the first half of the fiscal 2002-03, recorded a healthy growth, which is again a plus point for the economy and business confidence of entrepreneurs. Good demand and improved unit prices for exported goods have contributed to this growth. The remaining half of 2003 is projected to see month-wise exports rising from $811 million in January and leading up to $1.08 billion in the final month — June.

However, a greater effort will be required on the part of industry and exporters to move faster items like leather products, surgical appliances, carpets, rice, petroleum products, and sportswear, in the next six months as these have performed below the targets. However, gems and jewellery, chemicals and cement are doing well, according to the Export Promotion Bureau. Stability of the Pakistani currency that, in fact, is reflected by an 8.5 per cent appreciation in the value of the rupee against the US dollar, has helped spur imports.

Growing imports also widened the trade deficit to $590.335 million in these six months, up from $417.573 in the like year-earlier period. But, officials at the Ministry of Finance and the State Bank are “feeling comfortable” even with the widening trade deficit because the country’s forex reserves are rapidly rising. Larger imports can easily be financed out of growing forex reserves. The SBP says the liquid forex reserves were $9.335 billion as of December 31, 2002 — up 90 per cent from December 31, 2001. “By June 30 this year, the reserves are likely to cross $10 billion, another all-time landmark,” Shaukat Aziz, the PM’s Adviser on Finance says. In fact, in view of the improved forex reserves situation and stability of the rupee, Manila-based Asian Development Bank, Moody’s and Standard and Poor’s have upgraded Pakistan’s credit ratings.

In line with the exports sticking to the target, the textiles are moving ahead with $3.3 billion — plus sales abroad in the first six months. In fact the year may conclude with textile exports alone totalling $7 billion, overshooting the projection of $6.76 billion, according to the industry sources and exporters. Part of the reason for this growth is higher unit prices for Pakistani products, and better product quality. An improved quality is now visible as a result of import, and switching into production, of nearly $1.5 billion machinery from Germany, Italy and Japan. Increased excess of the Pakistani textiles to the European Union, and to some extent to the US, has also helped in boosting exports. Quota-regularised textiles earnings rose by 3.7 per cent in 2002 to $2.30 billion, as compared to $2.21 billion in the similar six months of 2001. Pakistanis also have stepped up utilization of the allotted quotas. The quota utilization rose in 2002 to 80 per cent of the allotment for the United States, 73 per cent for the EU and 65 per cent for Canada. Unit prices for exports to the US were, however, down by 4 per cent, but they rose by 11 per cent in the case of the EU.

Humayun Akhtar, the Commerce Minister, was in Brussels in January, discussing larger access for Pakistani products, as well as the question of the alleged bedlinen dumping by Pakistani businessmen. But, apparently there was not much success. Islamabad is now getting ready to fight a legal battle with the EU on the quota question and the alleged dumping. Mr Akhtar also was to calm the EU’s ruffled feelings over Pakistan International Airlines ordering seven latest Boeing aircraft from the US rather than buying European Airbuses.

The government, meanwhile, is offering yet another incentive to the exporters. Effective January 1, the government has started providing the exporters a 25-per cent freight subsidy to boost sale of Pakistani products abroad. The facility is available to those businessmen whose annual exports exceed $5.0 million, or those who are selling in countries where Pakistan’s total annual exports are less than $10 million. The industry is also asking the government to remove the present 5 per cent customs duty on import of machinery. Mr Akhtar supports the demand, and has promised to push for it at the Cabinet level, so that cheaper equipment helps in upgrading and modernization of the industry. He has also promised to ask the government to reduce the tariffs of utilities that are one of the costliest in the entire region and have led to raising cost of production of a range of products. The industry insists that costs such as these are making Pakistani products uncompetitive in the world market.

In an effort to reduce the costs, the SBP announced one per cent reduction in the Export Refinance Facility (ERF) for January. A further reduction in the ERF rate is expected in February. The SBP was charging commercial banks 4.5 per cent on ERF financing. They are allowed a maximum spread of 1.5 per cent and extend credit to exporters that was 6 per cent in January. The rate charged to exporters in December was 7 per cent. Over the last year, the SBP has been gradually reducing the export refinance rate in line with a reduction in its discount rate, and an easier monetary policy to help boost the economy.