Like other developing countries, 2008 will prove to be tough year for Pakistani exporters in selling their goods to their American customers following expected fall in demand as a result of recession in the US economy.

As the current forecast about a possible recession has been sparked by mounting US sub-prime debt defaults, the purchasing power of the American consumers is expected to fall substantially. US household debt is more than 100 per cent of the US GDP. Given the current rate of debt accumulation, the stimulus package of $145-150 billion on the consumers spending will be negligible. The US Fed interest and discounts rates are likely to further weaken the dollar (and fuel inflation), resulting in cut in costlier imports into the United States.

Some local exporters however think that the downturn in the US economy would create more demand for low priced , low value goods.

But many analysts say the continuing security situation and low value addition in the exportable goods—mainly textile and clothing- may further dampen our export prospects to the US. The situation becomes more complicated by foreign travel advisories and cautious approach of buyers due to unpredictable economic and political situation.

Pakistan’s 25-27 per cent exports are directed toward the US---the highest export to any country after the 28-member block of the European Union, Afghanistan and United Arab Emirates. This shows that any slowdown in the US economy may have a far reaching impact on our exports.

The US and EU being our principal markets, account for over half of our total exports which gives a clear message to policy makers in Islamabad to explore new markets and to reduce heavy reliance of exports on these few markets.

The exports to US have already witnessed a slight reduction of 0.21 per cent to $4.183 billion during the year 2006-07 against $4.192 billion in the previous year. However, the exports grew to over $4 billion in the year 2006-07 from $2.304 in the year 2003-04, a substantial growth since the abolition of the post textile quota regime. But it seems that export proceeds to US have reached a saturation point and are on decline since 2007.

The latest figures for the current half year are not available to determine the latest export trend to US. However, exporters reported a sizable decline in the shipment of goods to US following imposition of emergency, political uncertainty and turmoil on the streets after Benazir’s murder.

The United States is a traditional buyer of Pakistani textile products and Pakistan enjoys a favourable trade balance since long. Our textile sector cater to the need of the lower and middle class.

What is really affecting exports is now the country’s image. Foreigners do not want to buy products with ‘Made in Pakistan’ written on them,” says an exporter. A researcher, Mohammad Sulaiman says that the recession in US economy will have serious repercussions on our exports.

Second, the US economic downturn will also impact Asian economies including that of China. Obviously, countries like Pakistan whose textile exports are vulnerable, we may see the scope of foreign trade shrink.

There have been a host of other factors affecting the export growth particularly to the US which include stiff competition from China, India, Vietnam and Bangladesh, regional preferential arrangements such as North American Free Trade Area (NAFTA), Central American Free Trade Area (CAFTA). The US sponsored Qualified Industrial Zones (QIZs) in Jordan and Egypt which allow duty-free access to their products, have also affected export competitiveness.

Pakistan also has to address other challenges and to put in place pro-active policy measures including a balance in the monetary and fiscal policy. The policies of the previous government focused on revenue generation and reduction of debt to GDP ratio. Moreover, the highest ever increase in interest rates under the tightening of monetary policy for the last two years for controlling the core-inflation also had an impact on industrialisation leading to cash flow problems for some genuine exporters.

But the major challenge is our low productivity and quality, timely delivery and better research and development for keeping pace with international market trends.

The productive capacity suffers because of relatively low investment in new machinery and technology. The tax system favours investment in the non-industrial sectors, particularly speculative businesses such as stocks and real estate.

The export goods fetch low prices because we produce low end and low quality products and many could can be blamed for not developing their own brands. The education system does not produced necessary skills needed for quality goods. Competitiveness does depend on price alone.

Economist Dr A R Kemal said, it would be premature to determine the actual fall out of the slow down in US economy on Pakistan’s exports. However, he said, it is certain that the demand will decrease which will subsequently impact imports.

Pakistan will not be the only country to be impacted. Other countries like India and China will also experience some fluctuations in their exports.

Statistics shows US imports about $100 billion textile and clothing. Pakistan share is about 3-4 per cent of its total imports.

A Karachi-based industrialist, Engineer M. Jabbar says that consumer spending in the US market is falling and our textile and clothing export may see some decline but it will not be substantial. The price will have to be more competitive with lower profits--, an answer for selling in recession economy.

It is expected that the slow down in US economy might impact the export of high value added products because of higher prices but the recession may nor impact exports will low value added products. But there may be supply constraints.