A growing national concern is the stagnant or falling export earnings needed to finance import of capital goods in a growing economy. The concern is shared by businesses, independent economists and policymakers alike.

A widening export-import gap and adverse balance of payments are turning into a deterrent in realising the potential for foreign trade and investment. The problem is worsened by a heavy loan repayment and debt servicing cost.

Declining world trade is worsening imbalances in bilateral trade which need to be reversed as export earnings need to, more or less, match the import bill to reduce foreign dependence.

A widening export-import gap and adverse balance of payments are turning into a deterrent in realising the potential for foreign trade and investment

Regarding foreign exchange earnings required for sustainable economic growth, the author of a recent book ‘Aid or Trade’ and Chairman of the Atlas group of companies, Yusuf H. Shirazi, says “Pakistan needs to eradicate its trade deficit and ensure that the balance of trade becomes favourable” for the country.

Commenting on the current external sector pressures, the industrial tycoon suggests: setting up heavy, basic and engineering companies for value added exports: imparting export orientation to the economy and improving quality and quantity of production by using latest technology; and a policy of self-reliance to reduce debts.

To achieve all this Mr Yusuf Shirazi also pleads for an enabling environment that the government should create to spur exports: reduce cost of doing business and improve investment to GDP ratio by enhancing tax credits and reducing the tax burden on the already taxed, including timely payments of exporters’ refunds.

A paper described as a staff note on ‘Export performance of Pakistan: role of structural factors’ prepared by the State Bank researchers Arif Mahmood and Waqas Ahmed has identified four factors that have affected the country’s export performance during 2009-2015 : the world trade effect, commodity composition effect , market diversification effect and competitive effect.

Using the Constant Market Share Analysis (CMSA) technique the authors find that Pakistan’s export growth during the period under review “was solely driven by global trade effect”. That explains “the vulnerability of our exports to global shocks.” For example, the fall in international commodity prices and slowdown in global trade prompted Pakistan’s export growth to turn negative in FY2015-16, even exceeding the plunge in global trade.

A lacklustre global trade witnessed since the international financial crisis of 2007-08 has further worsened with a decline of 12pc over the past two years.

In its World Economic Outlook, the IMF has identified the following reasons for the slowdown: protectionist policies, transformation of Chinese economy towards inclusive growth, decline in global value chains and general fall in private investment across the globe.

According to the research report, the problem of export growth is much more deep-seated. It notes that the country’s export performance has been weak over the past two decades.

Unlike Pakistan most of the regional competitors were able to transform their export base from primary commodities to high value added products. Compared to 16 percentage points increase in Pakistan’s share of manufactured goods in total exports, the average increase in case of regional countries was 43 percentage points.

Structural reforms aimed at export promotion — such as product and market diversification — focused on education and research, have played a key role in making a difference in these regional economies.

In case of Pakistan the impact of commodity and market diversification has been marginal.

According to the IMF’s direction of trade statistics, Pakistan has slightly diversified its destinations over the last decade. The country’s exports to US and European markets have reduced by about nine percentage points from 45pc in 2006 to 36pc in 2015.

Pakistan also trades heavily with members of the Gulf Cooperation Council. But it appears to be under-exporting to large and fast growing economies.

Quoting ITC, the study points out that the number of products exported during 2011-2015 dropped by 169. In contrast Bangladesh, Sri Lanka and Cambodia witnessed an addition of 267, 508 and 330 products respectively in the same period.

Regional countries have significantly gained from improvements in export competitiveness in the recent past. In fact, their gain from competitiveness was large enough to offset the loss they faced through inadequate commodity and market diversification.

According to the researchers, the competitiveness effect includes the impact of trade policy, changes in the real exchange rate, tariff structure and structural reforms.

The paper stresses the need for urgent removal of structural bottlenecks for sustainability of the country’s balance of payments position and for the medium-term growth trajectory.

It estimates that around 20-30pc imported inputs have been used at different stages of production in Pakistan.

But despite the significant importance of imported inputs in production, the study stresses that applied tariff rates are relatively high in Pakistan as compared to peers/competitors.

That, the study cautions, could seriously damage the country’s export competitiveness. However the budget proposals for 2017-18 have taken care of some of the tariff problems on industrial inputs.

While the study does have valid arguments for boosting exports, the pressure on the external sector can be only eased by an integrated policy for export promotion and import substitution. This means cutting down imports where the country has a domestic advantage.

One has to sell to earn hard currency in order to buy more. This calls for strenuous effort to balance bilateral trade. China needs to be persuaded to buy more goods from Pakistan to reduce the surging trade imbalance owing to CPEC-related imports.

Published in Dawn, The Business and Finance Weekly, June 12th, 2017