Pakistan is in dire need of a well thought out strategy for boosting exports from the country to accumulate foreign currency reserves, as well as ensure long-term stability in the external account.

Ever since taking over the finance ministry, Miftah Ismail has repeatedly emphasised the importance of increasing exports by enhancing domestic productivity to produce a surplus for international markets and diversifying export products and markets. He has rightly pointed out that not enough attention is paid to raising exports in the last many years, offering tax benefits to the companies that export at least 10 per cent of their production.

However, the government led by Prime Minister Shehbaz Sharif has so far not prepared any strategy to push exports. Perhaps, the task of getting the International Monetary Fund to (IMF) restore its suspended bailout deal to overcome more immediate liquidity problems and avert a default-like situation amid political instability is keeping the government busy.

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Pakistan’s persistent current account deficit and low level of foreign exchange reserves, consequently resulting in a repeated balance of payment crisis, are driven primarily due to low exports that stood below 10pc of GDP in 2021. For comparison, the world export-to-GDP ratio average in 2021 based on 130 countries was 43.3pc.

Likewise, the export-to-GDP ratio of lower middle-income countries averaged 24.7pc, the South Asian countries averaged 17.5pc while even more fragile states labelled highly indebted poor countries averaged 24.4pc, according to the World Bank data. The most successful exporters in the region such as Vietnam, Malaysia, and Thailand report values of more than 50pc, with Vietnam exceeding 100pc of its GDP. Even Pakistan has done better in past, with the ratio standing at 12.22pc in 2014 and peaking at 17.3pc in 1992.

Strategies like the imposition of restrictions on imports cannot help us for very long but will certainly keep us underdeveloped and poor

Therefore, Pakistan’s ability to accumulate foreign currency reserves when the country is not in an IMF programme is constrained and causes the balance of payment troubles. Thus, low exports should be a major concern for politicians, policymakers and businesspeople.

The dollar value of overseas shipments from Pakistan was reported at $31.8 billion last year, the highest-ever reported. It shows a surge of 25.5pc over the value in the previous fiscal year, according to the Pakistan Bureau of Statistics (PBS), which is encouraging. The data, nonetheless, shows that the increase in exports owes mainly to the effect of rising global commodity prices while quantities of the various merchandise shipped either stagnated or declined.

Similarly, there also was a spike of 42pc in imports to $80bn due to both the commodity super cycle, especially the rise in energy prices, as well as the increased quantity of imported stuff, inflating the trade deficit by over 55pc to $48.3bn from a year ago.

The recent global events — the Covid-19 pandemic and the Russian invasion of Ukraine — causing disruptions to the supply chain, and driving energy and food prices to unprecedented high levels have led countries like Sri Lanka to default. Pakistan has done better to manage the crisis. Yet its foreign currency reserves have depleted to under $8bn, barely enough to cover imports of less than one and a half months, causing the exchange rate to rapidly depreciate and fueling inflation in the economy, with the weekly sensitive price index (SPI) surging by 42pc last week.

As has been the case during the recent balance of payment crises, the government has responded to the present troubles by restricting imports to inhibit demand in order to reduce dollar outflow until such times the IMF bailout funding becomes available. Such strategies produce limited results and work only for a brief period. The long-term solution to the perennial external account troubles is in boosting domestic productivity and exports as underlined by the recent global crisis. The economy cannot make progress without making the economy export driven.

Pakistan has reached a staff-level agreement with the IMF and its board is expected to meet on August 29 to approve the restoration of its bailout programme. That will pave the way for the release of two instalments totalling $1.8bn and bring to an end the prevalent economic uncertainty in the country besides reducing the exchange rate volatility.

It will be a temporary relief from the crisis unless the government uses this opportunity and period of stability to implement reforms to boost the country’s agricultural and industrial productivity to produce a surplus for the global markets. But productivity enhancement alone will not be enough, an export strategy must ensure the integration of manufacturers into global value chains through trade openness.

This will not only make Pakistani producers more productive but also competitive in the international markets. Additionally, the integration with the regional and global economy will automatically help the diversify into new products and markets.

There’s no doubt that if we want to break out of ‘boom-bust’ cycles involving a balance of payment crisis every few years, we will have to increase our productivity and boost our exports as a per cent of GDP. Any other strategy like the imposition of restrictions on imports cannot help us for very long. But it will certainly keep us underdeveloped and poor.

Published in Dawn, The Business and Finance Weekly, August 22nd, 2022