Pakistan’s merchandise exports have grown by an ‘impressive’ 25 per cent in the first three quarters of ongoing fiscal to March over the value reported a year ago, according to data released by the commerce ministry on Friday. The export proceeds reached $23.33 billion during the period from $18.69bn in the corresponding period last year.

The government has projected the annual merchandise export target at $31.20bn and services at $7.5bn for the current financial year through June. The nation’s export shipments had fetched $25.29bn in FY21, or up by 18 per cent from $21.39 billion during the preceding year. The growth in the country’s exports is attributed mainly to the massive depreciation of the rupee along with several policy measures announced by the government over the last couple of years.

In December, the government has approved the revised Strategic Trade Policy Framework (STPF) 2020-25 with a string of policy measures to boost exports to $57bn by the end of 2024-25 and has allocated Rs44.72bn for its implementation in the form of subsidies and other support to non-textile sectors. In February, it also approved the Textile and Apparel Policy, which envisages the diversification of markets and products as part of its effort to boost exports.

Along with exports, the country’s imports have also risen, and that too at a relatively much faster rate, leading to a burgeoning negative balance of trade. Though the import numbers for March are yet to be compiled and published by the Pakistan Bureau of Statistics (PBS), the data for the period between July and February shows that imports had spiked by a hefty 55.1pc to $52.50bn in the first eight months of the current fiscal from the previous year. Consequently, the trade imbalance has deteriorated by over 82pc to $31.95bn from $17.53bn.

With exports standing at 7.4pc of the nation’s GDP, one of the lowest values in the world, it is crucial to push productivity, as well as diversify markets and products

With the ballooning trade deficit feeding into the external sector, the current deficit for the first eight months of the present financial year is reported by the State Bank of Pakistan (SBP) to have expanded to $12.90bn from a surplus of $994 million a year before.

The foreign exchange reserves held by the central bank were reported to have dropped to $12.05bn or down by $2.91bn on March 25 from $14.96bn a week before on external debt payments. The volatility in the exchange rate over decreasing reserves coupled with an uncertain political scene following the combined opposition’s salvo to remove the ruling PTI from power through a vote of no-confidence against the prime minister has resulted in a substantial devaluation of the home currency to a record high of above 184 to a dollar.

The deteriorating balance of payments position and falling rupee are likely to remain the most fundamental challenge for the government irrespective of the results of the opposition political parties’ assault on the ruling PTI for a very long period given the delay in the seventh review of the International Monetary Fund programme, Islamabad’s tensions with the US and other western capitals, drying foreign direct investment and, more importantly, burgeoning trade deficit due to slower-than-required increase in exports.

Many fear that the emerging balance of payment crisis may force the government (in the post no-confidence vote period) to resort to import compression in the short to medium term to protect foreign exchange reserves, and the home currency. In the recent past, we have seen such policies create a false sense of complacency as governments compress domestic demand to bridge the trade gap, driving the current account deficit, at the expense of growth and jobs.

Past experience shows that such policies work but only for a limited period; at the end of the day, these have to be reversed. It is vital that policymakers focus on more rapid export growth for sustainably slashing the trade deficit, which has been feeding into the repeated balance of payment crises.

Indeed, the present administration has done a lot to bring the focus back on exports. Yet it is not enough. The exports have been on the upward trajectory for the last couple of years, but remain far short of their potential. With exports standing at 7.4pc of the nation’s GDP, one of the lowest values in the world, it is crucial to push productivity, as well as diversify the markets beyond the US and Europe, which account for half of the outbound shipments from the country, and products other than textiles and clothing, which form almost two-third of total proceeds.

The average export to GDP ratio stands at 17.2pc for South Asia and 26.7pc for East Asia. The export-to-GDP ratio for countries like Malaysia and Thailand is more than 50pc and for Vietnam 100pc. India recently celebrated the achievement of the ‘highest ever’ exports of more than $400 billion during the period between April and March. Bangladesh too has left us far behind by becoming part of the global value chain of the textile and clothing industry.

If Pakistan is to graduate from its frequent boom and bust cycles, it will have to develop a viable export strategy that thinks beyond unproductive subsidies, and seeks to improve the international competitiveness of exporters as well as encourages value-addition, product and market diversification, and innovation in addition to taking steps to ensure the country’s participation in the global value chains. That will not be easy but is doable.

Published in Dawn, The Business and Finance Weekly, April 4th, 2022