Economic indicators, during the last two years, have improved but the export trend has reversed, showing a 8.2pc decline during the first two months of 2016-17; compounding the slide of 12.1pc in 2015-16 and 4.9pc in 2015.

The decline in exports can be partly attributed to the exogenous factors e.g. the 15pc contraction of global markets in 2015 and 25pc dip in the global commodity index.

The export sector, however, has been debilitating for a decade — Pakistan’s share in the global market has eroded whereas regional peers - India and Bangladesh — have doubled theirs; the export-to-GDP ratio has decreased from 13pc to 8.9pc.

Exports are facing a threefold policy challenge — policy conflict, policy disconnect, and policy vacuum.

Firstly, the objectives of vital policies driving the economic growth model conflict with exports. A 3-year IMF programme has recently concluded with accolades at ‘the prudent monetary policy’ for achieving the conflicting goals of containing inflation and spurring growth, but with concerns at the real exchange rate appreciation contributing to the ‘erosion of export competitiveness’.

The external borrowing (coupled with remittance bonanza) has been afflicted with the ‘Dutch Disease’ of artificially appreciating the currency; the increased size of external debt (currently $73bn) makes it imperative to prop the currency as appreciation of one rupee against the dollar eases the debt burden by Rs73bn.

Appreciated currency has a cost — it makes exports expensive and imports cheaper. In order to steal the share from competitors in a sluggish international market, countries are engaged in a kind of ‘currency war’ of competitive devaluations — since November 2013, Indian rupee has depreciated by 7pc, Chinese yuan by 8pc, South Korean won 10pc, Thai baht 11pc, Sri Lankan rupee 12pc, Euro 20pc and Brazilian real 51pc; swimming against the tide, Pakistani rupee has appreciated.

The tariff policy has been sapping exports. Around 40pc of the duty-free tariff lines, mainly essential raw materials and machinery, have been subjected to duties since 2014. The collection from Customs duties has increased by 36pc during the last two years. Regulatory duties are the new weapons in the armoury.

The tariff policy, abetted by the deficient trade facilitation at the border, is by far the biggest impediment to Pakistan’s integration into global value chains (GVCs). The cascading tariffs, celebrated for incentivising value addition, have erected a comfort zone for value added products in the domestic market vis-à-vis the highly competitive export market. While exports are declining, brands and retail chains by leading textile houses, are thriving in the domestic market.

Secondly, there is a disconnect between investment policy and export-led growth. The market access acquired through preferential trading arrangements and unilateral concessions (e.g. GSP plus) does not translate into an inflow of investment aimed at production for these markets. The import substitution, forsaken in theory, remains the mainstay of investment strategy in practice. Tariff protection in the domestic market, rather than competitive production environment, is the most persuasive incentive offered to foreign investors.

The FDI is predominantly in production of consumer goods, engineering and pharmaceutical products for the domestic market rather than being export driven. The engineering sector, which has the potential to steer exports out of the current low-value trap, is stubbornly domestic-focused — auto manufacturers, even after decades of outrageously high protection, invest their entire advocacy capital on seeking protection against 30-40 thousand imported, used cars and turn aside the suggestion to produce for the export market.

Thirdly, industrial and agriculture policies are conspicuous by absence, rendering the production random rather than planned. In a policy vacuum, the production is supply driven — pushing in the global market what we can produce rather than producing what sells. The export sector depends on policy direction for transforming production from factor-driven to innovation-based, enhancing competitiveness of the efficient, rehabilitating the sick and phasing out the incorrigibly uncompetitive subsectors.

In the absence of national or regional/provincial agricultural and industrial policies, sectoral biases and distortions have sneaked into the production paradigm. The production base finds itself unviable in an intensely competitive global market and is kept afloat through inefficient tariff protection, untargeted subsidies, camouflaged handouts and distortive policy interventions.

To conclude, the economic policy environment in which exports operate has its role in smothering exports and eroding share in the global market. The regaining of our lost share vitally depends on getting the policy mix right.

The economic growth model requires a realignment to make exports partner in growth specifically through (a) adjusting the exchange rate to restore export competitiveness, (b) rationalising tariffs to remove anti-export bias, (c) calibrating investment policy for promoting export-led FDI, and (d) developing agricultural and industrial policies to steer an organised growth.

The author is joint secretary (Exim), Ministry of Commerce

Published in Dawn, Business & Finance weekly, September 26th, 2016