ISLAMABAD, 4 March 2002 — Pakistani exports have slowed down. Industrial production will have to be increased to raise them and generate a growth momentum in the wake of global recession and events of Sept. 11.
The government has now requested the IMF and other donors to revise the export target downward. The government is now considering reducing the annual export target for the current fiscal 2002 from $9.1 billion to $8.5 billion. Originally the target was set at $10.1 billion.
Commerce Minister Abdul Razzak Dawood estimates the year may see a 20 percent reduction in exports, that is around $1.5 billion. “The overall loss to the national economy, following the Sept. 11 attacks in the US, will be $3.0 billion,” Finance Minister Shaukat Aziz says.
Hopes, following Western promises of larger aid and market access, that were raised for a faster turnaround of the economy are dimmed following the lack of a significant breakthrough. This is partly because such results are slow to register but also because Washington is not as helpful as it was hoped. The dismay, despite President George Bush’s heart-warming words for President Pervez Musharraf, is that all these words are not translating into major trade and market access benefits for the Pakistani economy.
In fact, Dawood, on return from Washington, said: “The trade package US has offered Pakistan is not upto our expectations. It is not enough. As a result, negotiations will continue to get better market access to repair the damage to our textile sector following the September events.”
“The package of $142 million worth of additional textile exports to the United States is very small, with which I am not satisfied,” said Dawood. He said, over the last five months, Pakistani exports of textiles to US have sharply declined as the American apparel makers and garment importers are staying away from the Pakistani market. As against what Pakistan got from Washington, it was expecting enhancement of its textile export quota, flexibilities and suspension of import duties on its textiles exports.
The American government negotiators have offered an increase of 15 percent in export quota that is to be built into the base level of 2002 and a special swing of 25 percent for calendar years 2002-2004, in addition to the swing already in bilateral agreement for some of the garment and textile categories. Pakistan’ value-added textile producing sector has rejected the US textile concessions and described it as “a mere eye-wash.”
“The concessions are merely a paper adjustment, just to pacify the Pakistani negotiators,” says Shabbir Ahmed, chairman, Pakistan Bedwear Exporters’ Association (PBEA). S.M.A. Rizvi, vice chairman, Towel Manufacturers Association of Pakistan (TMA) said, “The US offer to import a few garment categories will bring in just a few million dollars more, and it is only a cosmetic increase. In fact, it means no positive increase in textile quotas.” Islamabad’s disappointment with the small US concessions is understandable because more than 60 percent of all Pakistani exports consist of textiles. Islamabad’s woes with Washington are complicated further since last June, when the American textile lobby began campaigning to restrict textile imports from Asia, including Pakistan, because the US dollar has eased in relation to the Asian currencies.
Exports declined 1.5 percent during July, 2001-January 2002, the first seven months of the current fiscal 2002, as they totaled only $5.155 billion, compared to $5.233 billion in the same period of fiscal 2001. The export target for the first seven months of fiscal 2002 was $5.718 billion but the actual performance fell short by $562 million.
Imports in the same first seven months of fiscal 2002 declined 10 percent to $5.733 billion down from $6.368 billion in the like period of fiscal 2001. The trade deficit was $578.1 billion, that narrowed from $1.134 billion in the like seven months of 2001.
The decline both in exports and imports is attributed to reduced demand from abroad, including United States, Europe and Japan that are adversely affected by varying degrees of a slowdown or recession, and outright cancellation of orders from importers from these countries, following Sept. 11. At the same time Pakistani exports are facing a declining unit value of its key export items that slashed its earnings by $700 million in fiscal 2001. Some of the other reasons are increased shipping, freight, insurance and war risk costs that followed United States attack on Afghanistan. Although some of the war-related costs have now eased, not all of these have been fully withdrawn.
Since bulk of Pakistani imports comprise industrial raw materials and inputs that mainly go into producing goods for export, reduced export orders have directly impacted such imports. At the same time, domestic demand for a range of products and services is also not picking up not only because of reduced foreign trade, but also because the government is still continuing with budget cuts and public sector spending. This is part of the effort to reduce the budgetary deficit that is being closely watched by IMF and Western donors and international, financial institutions (IFIs). Although United States, Western aid donors, and IFIs have announced foreign debt rescheduling and fresh aid, most actual inflows are still to materialize. In fact, the government and financial analysts agree that any significant impact may not be visible before fiscal 2003 that starts July 1.
Islamabad was banking a great deal on the outcome of President Musharraf’s meetings with President Bush, but the trade and economic package that has emerged has largely been described by Pakistani analysts as “disappointing.” The Pakistan government, as a willing, rather outright, hasty and over-enthusiastic partner in the so-called international coalition against terrorism, is now disappointed after gaining only a small debt relief, lack of a preferential treatment for its exports and non-availability of a loan or grant for development.
Islamabad had hoped for a major write-off of its bilateral, outstanding American loans of $2.8 billion, but what has come about is just $1.0 billion being waived. Even this is not a complete write-off but it may be a relief at the time the loan is retired, by way of a reduced interest rate. However, Washington’s promise to vote for additional assistance on softer terms through IMF and other IFIs may be more beneficial.
The European Union, in order to help, has improved market access for Pakistani goods, effective Jan. 1 this year. It will permit Islamabad to expand export of textiles and other goods by $150 million a year. Over the next three years, Pakistan hopes to gain an additional access of $450 to 500 million. Prior to the increase, bedlinen exports to EU were $300 million a year which will go up as a result of a 15 percent increase in quota ceiling, and removal of 6.5 percent anti-dumping duty. It will provide Pakistan a break in terms of quantity and price over other countries, upto 2004, when textile quotas will be lifted. Pakistan will have to produce more industrial goods in order to export more because manufacturing contributes 17 percent to growth. Manufacturing increased 8.6 percent in fiscal 2001 but 1.8 percent in July-November, 2001-02. The government, industry and business will have to gear production up and generate considerable exportable surpluses in order to significantly increase exports.
Dawood plans to pursued US textile industrialists for relocating some of their textile units in Pakistan. Will they in fact do so? This is another matter. The US invested $92.7 million in Pakistan, in 2000, out of its global private investment of $1.3 trillion. Here lies the disappointment.
Can this dim situation turn into a bright change? These expectations will have to be linked with the domestic prospects of growth, business and investment. Finance Minister Shaukat Aziz hopes that the growth will improve from 3.3 percent to 3.5 percent in fiscal 2003, as a result of the manufacturing sector picking up, and a larger aid inflow for supporting the US and ICT. Growth in fiscal 2001 was a lowly 2.6 percent as a result of a sever drought instead of a targeted 4.5 percent.
Pakistan has already received $673 million from US and hopes it will get a total of $1.7 billion over two years, while $350 million are expected from Japan and $300 million from the European Union and Britain. Also, Western nations have already written off $500 in outstanding debts.
Whether it is trade or aid, Islamabad will now have to largely endeavor on its own to crank up domestic economy in order to generate growth momentum.