The International Monetary Fund (IMF) has cast doubts on Pakistan’s export goals by projecting figures that significantly lag behind the target set by the caretaker government’s five-year strategic plan.

According to the IMF’s first review of the $3 billion Standby Arrangement, Pakistan’s export proceeds over the next five years are likely to be way less than the commerce ministry’s ambitious objective of reaching $100bn by the end of the 2027-28 fiscal year.

While the IMF bases its projections on nominal growth rates, the commerce ministry’s plan hinges on aggressive growth and a diversified export portfolio.

In stark contrast to the ministry’s expectations, the Fund anticipates Pakistan’s exports will increase gradually from $30.84bn in FY24, $32.35bn in FY25, $34.68bn in FY26, $37.25bn in FY27, and to $39.46bn in FY28. The IMF report did not analyse the determinants of predicted export increase over the next five years. However, the report noted two significant points: the exclusion of the State Bank of Pakistan from export refinancing schemes and the gas price disparities between export and non-export industries.

Achieving ambitious target depends on several factors, including access to low-cost energy and withdrawal of future export subsidies

The SBP will phase off refinancing plans like export finance and long-term financing by mid-2028. These initiatives will fall to the EXIM Bank of Pakistan, which will add value and diversify exports in future. The government will also incorporate subsidy amounts in its annual budget to assist these initiatives. Due to limited space and high loan rates, subsidising may be difficult.

The commerce ministry’s five-year strategy, led by caretaker Commerce Minister Gohar Ejaz, proposes an export target of $100bn. Clothing and textile exports are estimated to reach $50bn, or about half of the total. In addition, $25bn is projected for agriculture and food exports, while $25bn is for engineering, pharmaceutical and industrial exports.

The ministry’s strategy also encompasses the establishment of 50,000 small and medium-sized enterprise (SME) exporters and the promotion of specialised export products across 39 administrative divisions, targeting markets in China, the Gulf Cooperation Council (GCC), and Africa.

Apart from textile and garment sectors in Lahore, Multan, Faisalabad, and Karachi, the export plan would focus on jewels and gems, minerals, fresh fruits, flowers, processed fruit and juices, dairy and milk products, meat products, furniture, cutlery, engineering, surgical, leather, and sports goods.

A reality or a dream

However, the realisation of these ambitious plans is contingent upon several factors, including access to low-cost energy and the withdrawal of future export subsidies.

To enable Chinese enterprises relocate, CPEC industrial zones would be established in Karachi, Lahore, Faisalabad, and Gilgit-Baltistan. An industrial park for exporting value-added commodities will be developed. The new policy will also include the construction of the Mineral Development Park in Gwadar.

Political instability and policy inconsistencies have previously impacted the country’s export performance, with a drop of over $4bn following the government change in 2022.

Economic policy must be consistent throughout governments, as investors need assurance when creating 10- to 20-year corporate strategies.

The new policy should also address industrialists’ two main concerns: stable currency and cheap interest rates. Exporters are fighting to receive the stuck refunds of Rs700bn. The effort to zero-rate all exports is laudable. The finance minister may not approve of this zero-rating strategy to justify a high tax target by withholding refunds.

Achieving this goal requires major reforms to guarantee exporters affordable capital by zero-rating all exports. Additionally, the industry needs competitive energy sources. Geographical prejudices must be eliminated and equal incentives should be offered all across the country. The CPEC special economic zone in Khyber Pakhtunkhwa is awaiting approval to deliver power to its companies.

A famous Karachi exporter recently opened a dairy farm near his factory. This clever initiative uses dairy farm byproducts to produce cheaper energy for the export industry.

However, this initiative will be difficult for all to opt for. Therefore, capital and affordable energy must be prioritised for this $100bn export strategy to succeed. Otherwise, the policy risks becoming another unfulfilled ambition.

Published in Dawn, January 28th, 2024