ISLAMABAD, 13 October 2003 — Pakistani exports are up, and so is the competitive threat to their future growth. But what are its trade prospects in the regional framework?
The situation calls for a strenuous, two-pronged effort to keep the exports rising, and to counter the growing external threat, particularly in the run up to the start of the WTO regime, that is merely 14 months away. The second part of the effort, which in fact will be a major struggle, has to be viewed in the context of claims and counter claims regarding Pakistan’s readiness to meet ushering-in of WTO regime. While the government, particularly Commerce Minister Humayun Akhtar, insists that the country is ready to meet the WTO challenges and removal of global customs tariffs and quotas, the businessmen, industrialists and exporters contest such claims. Their feelings and apprehensions can be summed up in the saying “too little, too late.”
However, as of now, there is a word of cheer. As the first quarter of the current fiscal 2004 has just finished, it saw exports rise 14.65 percent to $2.967.63 billion, compared to the like first quarter of fiscal 2003. Seen from the perspective of the $12.1 billion overall export target for the entire fiscal 2004, the performance during the first quarter was a shade below — 0.48 percent — and should have been $3.00 billion. But, it is quite common for the first - and even second quarter of the fiscal - to be slow moving in exports as production gradually gear up after the start of each new fiscal which is spearheaded by announcement of the national budget in June. In fact, it is already confirmed by August exports which were higher than July, and September statistics that were higher compared to both July and August. Exports will pick up faster in coming months, industry and exporters insist. Imports, too, rose 11.84 percent to $3.105 billion, in the first quarter, compared to the like 3-months of fiscal 2003, according to just-unveiled official statistics.
A healthy sign in the foreign trade field, so far, is that despite the boost in imports, the trade deficit narrowed 26.75 percent at $137.99 million, compared to the first quarter of 2003. It means that Pakistani exports funded 95.55 percent of the total imports — up from 91 percent for the entire 2003 — showing a decline in borrowed or aid-funded imports.
The increases in the foreign trade sector are attributable both to external and domestic factors. Exports rose partly because of a larger access EU allowed to Pakistani textiles nearly two years ago. But, Islamabad’s hopes for Washington to allow similar access to its textiles have not materialized, mainly because of the opposition of the American textile lobby that has been undergoing a downturn for several years. Larger trade dollar inflows also helped build up official forex reserves, leading to stabilizing the exchange rate. In fact, Pakistani rupee appreciated more than 11.6 percent in the last eighteen months.
But, State Bank of Pakistan), the central bank, through its buy and sell operations have modified the rupee appreciation so that merchandize exports do not become too expensive, and uncompetitive.
Domestically, historically low interest rates, some closer to four percent, now being charged by banks, as well as an under-four percent annual inflation, also has helped reduced the cost of production. Part of the unused industrial capacity that remained out of operation since mid-1990s, have recently been coming back into production in order to generate larger surpluses to feed the growing export possibilities.
But, this is very favorable scenario, could be short-lived. Already independent economists are apprehending an increase in inflation as well as banks’ lending rates. Both can push the cost of production up, and make competition more difficult in the global market place. Pakistan also worries that its exports are heavily cotton-based and largely confined to textiles. Out of its $11 billion exports in fiscal 2003, the textiles group contributed $8 billion to forex earnings.
During the first quarter of 2004, export of textiles alone rose to $2.967 billion - 66.65 percent of overall exports, up from 65.50 in the like quarter of 2003. In order to counter the growing international competition, Pakistan is diversifying its trade both in terms of items and by finding new business partners in the Gulf, Middle East, Africa, as well as South and Southeast Asia, through multilateral and bilateral arrangements.
Pakistan, for instance, is quite upbeat over the prospects of increasing businesses with member countries of South Asian Association for Regional Cooperation (SAARC) — Bangladesh, Bhutan, India, Maldives, Nepal and Sri Lanka. SAARC representatives will meet at the Nepalese capital of Katmandu this month to finalize the treaty to establish Southesia Free Trade Area (SAFTA). If all goes well, although it seldoms does, SAFTA ought to be fully operational by 2005. If it does materialize, and member countries do take to enlarge regional business under this treaty’s auspices, it should offset some of the ill-effects that may accrue from the WTO regime, too, coming into operation at time.