Pakistan cannot survive without increasing exports exponentially.

Sadly, it was only recently that the country’s policymakers realised the importance of exports for the country to break out of periodic boom-and-bust cycles responsible for leading us to the International Monetary Fund (IMF) for the fourth bailout in less than two decades.

The consumption-driven growth strategy pursued by successive military and civilian governments in the recent and distant past has always brought short-term relief, caused deindustrialisation, eroded export competitiveness, built up debt and led the country back into balance-of-payments crises.

Pakistan’s exports decreased from around 17 per cent of its GDP in 2003 to slightly above 9pc 2015 onwards, with its share in the world market declining from 0.16pc to 0.13pc. On the other hand, Vietnam has enhanced its market share eight times to 1.35pc from 0.17pc. The market share of Bangladesh went up by 1.4pc to 0.24pc from 0.10pc over the same period.

With its abysmally low export-to-GDP ratio, Pakistan is doing better than Afghanistan, Yemen and Ethiopia only. That is not all. The country’s exports have a very narrow product mix as low-value cotton-based textiles and other primary commodities form the bulk of foreign shipments. This makes exports dangerously dependent on the weather.

Exporters need consistency in government policies to make long-term investment decisions. Without consistency, no effort to grow private investment will succeed

Increasing exports is going to be a tough job. The exchange rate depreciation in the last one and a half years and the provision of electricity and imported gas at subsidised rates to exporters have helped somewhat improve their competitiveness. But the lack of growth in foreign sales — exports rose 2.2pc to $13.5 billion in the first seven months of 2019-20 — underscores the fact that a weaker currency or fiscal incentives can help only so much. Exports will not grow rapidly until deep, underlying structural issues are tackled effectively to increase competitiveness of exporters.

Pakistan ranks 110 out of 141 nations on the Global Competitiveness Index, below all South Asian countries. Individual competitiveness indicators show that Pakistan is doing extremely poorly on ICT adoption, skills, credit availability to the private sector, utility infrastructure and so on primarily because of government policies. The country’s performance on trade openness — where it is ranked 138th — has been worst and a major factor in the erosion of its export competitiveness.

The government is now developing a Strategic Trade Policy Framework (STPF) which, according to trade officials, will aim at diversifying and increasing exports by offering time-bound fiscal incentives to more than 20 sectors apart from the existing five zero-rated industries i.e. textiles, sports goods, surgical instruments, leather and carpets.

The framework will be part of the next budget, which will eliminate the need for separate announcement of incentives being drawn up for exporters. A new tariff policy has also been devised to shift the focus away from revenue generation towards boosting exports from the country.

It is not clear what kind of incentives the new framework will offer to exporters, especially in the sectors that have been ignored until now. But the framework must clearly define priorities, goals and objectives to improve export competitiveness. The policy should focus on creating an enabling environment for potential exporters in terms of infrastructure, taxation, regulation, access to technology, skilled labour and improved market access.

There is also a need for better cooperation between the industry and policymakers for improving productivity, incentivising innovation and improving the national image in foreign markets through marketing and advocacy. The policy framework should reduce the regulatory burden on exporters, especially the small and medium enterprises (SMEs). It should ensure that whatever policy and fiscal incentives are announced must also be made available to ‘deemed’ or ‘indirect’ exporters who produce raw materials for final exporters.

More importantly, exporters need consistency in government policies to make long-term investment decisions. Unless this consistency is not ensured, no effort to increase private investment will succeed.

The government also needs to urgently take steps to increase the availability of credit for SMEs. The State Bank of Pakistan (SBP) has recently enhanced the funding limit to Rs200bn under its subsidised credit schemes — Export Refinance Scheme (ERS) and Long-Term Financing Facility (LTFF) — for exporters to help meet their working capital requirements and capacity expansion. The bank has also widened the scope of these schemes so that more exporters, especially SMEs, can use these cheap funds to boost their productivity and foreign sales. But a lot more needs to be done to ensure that SMEs get an easier and quicker access to credit involving minimum documentation for the expansion of their operations.

Published in Dawn, The Business and Finance Weekly, February 24th, 2020