KARACHI, July 17: After witnessing a record deficit of more than $13.5 billion in 2006-07 mainly because of sluggish exports and a massive import bill, Federal Commerce Minister Humayun Akhtar Khan is unveiling international trade strategy for 2007-08 on Wednesday.
In last three years, the total trade imbalance has exceeded $35 billion. The foreign exchange haemorrhage is being met by inflows from remittances, privatisation proceeds and direct foreign investment. Ironically, the government started organising ‘Expo Pakistan’ in Karachi exactly three years ago to improve on the performance of exports. Exports are going up but not in the way the economic planners foresee.
The import bill is swelling up mainly because the international prices of fuel oil and edible oil also went up. But also to be blamed for rising import bill is the growing demand for cars and electronics as banks and leasing companies offer generous loans. The liberal import for cars and electronics has also led to demand for electric power and fuel oil.
Exports suffer from high production cost and many local items have not only been rendered uncompetitive in the international markets but have also been pushed out of the domestic market. Pakistan markets are now flooded with Chinese, Indian, Indonesian, Thai, Malaysian goods that find their way into the country through smuggling or mis-declaration.
Leather exports surged to over $1bn-mark in 2005-06 but are now down to less than $700 million in 2006-07, even though the footwear was given a six per cent rebate in January this year.
“Leather exports went high in 2005-06 because of mis-declaration and bogus documents,” confided a leather industry leader. He said that a large number of leather units were closing.
Businessmen are not certain if the new Trade Policy will incorporate measures for boosting export of textiles.
The overall export in 2006-07 had been sluggish but textile exports had done relatively better. Textile exports grew by six per cent in 2006-07 as against hardly three per cent growth in overall exports. Textile is now almost 67 per cent of the total exports.
Days before, the federal commerce minister comes out with 2007-08 Trade Policy, his Indian counterpart Mr Kamal Nath announced an attractive incentives package for exporters. The local textile lobby has found it a good justification to plead concessions for spinning sector in particular and for entire industry.
By and large, the Pakistani exporters are demoralised and seem to be struggling since the time of dismantling of trade barriers. Pakistani exporters have neither dynamism nor aggression for international marketing as being seen in India, China, Sri Lanka and Bangladesh.
As Central Board of Revenue (CBR), now Federal Board of Revenue, won plaudits for improving revenue collection to Rs841 billion in 2006-07 is now on way to collect Rs1,025 billion, the industry is bending under its pressure. “More than 43 per cent of the total Rs841bn has been collected at imports’ stage and this hits the industry,” argued a business leader.
Pakistan-India trade is an issue which hardly finds a mention in the national trade policy. It is picking up steadily despite exchange of hard words between the commerce ministers of the two countries during 2006-07.
Pakistan blames India of putting non-tariff barriers on Pakistan’s goods. Indians say that these barriers were not Pakistan-specific but global and apply on all imports to the extent that even US Trade Department has complained. Pakistan refuses to give India Most Favoured Nation (MFN) status but markets are flooded with Indian goods coming from informal channels or through Dubai, Hong Kong and Singapore.
“If Pakistan is not ready to grant MFN status to India then it should liberalise imports of many items,” said Raees Ashraf Tarmohammad, the leader of Pakistan Grocery Importers Association. He said that the government should take necessary safeguards to protect domestic industry but there are many consumer products in India which are cheaper and better quality and Pakistani consumers stand to benefit from these.
Mubarak Zeb Khan adds: The government may project export target of around $19 billion and import bill of over $32 billion in the Trade Policy 2007-08.
Informed sources told Dawn on Tuesday that the commerce ministry had proposed the export target in the range of $18.6 billion to $19 billion, which would be finalised in the special cabinet meeting headed by Prime Minister Shaukat Aziz.
The import target would increase by around five per cent over the last year’s $30 billion, they added.
The business community has little hope for announcement of measures for reducing cost of doing business, boosting market access and promoting diversification of export base in the new trade policy as maximum measures had already been announced in the budget besides relief package for the textile industry.
It is expected that subsidies will not be included in the trade policy because it only promotes incompetence and rent-seeking behind the high tariff walls. However, it is expected that the government will announce a roadmap for initiation of trade agreements with many countries.