Future foreign trade appears buoyant

Author: 
By Muhammad Aftab
Publication Date: 
Mon, 2002-07-15 03:00

ISLAMABAD, 15 July — Pakistani exports have narrowly escaped a major decline that seemed likely only ten months ago. But now future foreign trade prospects appear buoyant.

Islamabad was fearing a $1 to $43 billion downturn of its economy, including more than a third of it in projected lost exports in the wake of Sept. 11. But, a larger-than-last fiscal export volume and a slight opening of the European and US markets helped bridge the gap. This was in spite of a 10 to 20 percent decline in unit value of exports that was only dented by a 20 percent increase in volume. Cancellation of several large orders immediately after Sept. 11 were an added major concern.

However, the recent foreign trade results for the fiscal 2002 that ended June 30, indicate that the country passed the psychologically critical $9.0 billion goal. The actual exports during the year totaled $9.125 billion — fractionally, 0.85 percent, lower than fiscal 2001 when the amount was $9.20 billion.

Islamabad, originally had set a $10.1 billion export target for 2002, but the events of Sept. 11 and the US attack on Afghanistan, cast a pall over the economy and slowed the wheels of production that officials of the Ministry of Commerce (MoC) and Ministry of Finance (MoF) were planning to slash it down to $8.0 billion. However, their worst fears did not come true.

Imports suffered too, as these declined to $10.335 billion — 3.6 percent down from fiscal 2001 when these were $10.73 billion. Imports, essentially of industrial raw materials and equipment, declined partly because of reduced export orders and partly because of the war-generated psychological gloom and the continued domestic recessionary situation. Matters did not end there.

Tensions of a military confrontation between India and Pakistan erupted during mid-winter as New Delhi and Islamabad committed nearly a million of their troops on the borders because of what India alleged of Islamabad’s lack of action in containing “cross-border terrorism.” Islamabad vehemently denied it. As a result, bourses in both countries were down and their economies slowed.

Reduced imports were one of the major factors that helped Pakistan narrow down its trade deficit in fiscal 2002 to $1.21 billion, from the amount of $1.53 billion a year earlier. The decline was 20.65 percent.

The Federal Bureau of Statistics (FBS) now reports that exports picked up 0.17 percent to $953.49 million in June, 2002, while imports rose 4.49 percent to $971.03 million compared to the similar month of fiscal 2001. “This positive trend, though still fragile, is likely to become stronger,” during fiscal 2003, officials hope. They place their optimism on the likely reduction in tension between Pakistan and India, and fuller utilization of increased market access allowed to Pakistani exporters to the markets in EU and US. The EU offered Pakistan this facility effective January while US did so late last winter.

There is also a multidimensional plan to boost foreign trade, especially exports, that by themselves, will step up imports, during fiscal 2003. Besides fuller utilization of the larger market excess facilities, other elements of the plan include: larger trade, and exports, with neighboring and cheaper sources of South Asian Alliance for Regional Cooperation (SAARC) of which India is the biggest market, as well as Bangladesh, Sri Lanka and Nepal; more businesses with Iran and Turkey; supplies for Afghan reconstruction and opening up of trade; establishment of an Ex-Im Bank; larger availability of forex for foreign trade; enlargement of the Large Scale Manufacturing (LSM) sector, expanding export of services especially in the field of banking; more IT business; and larger turnover of minerals and precious and semi-precious stones.

While the country is trying to produce more and sell more, it will also depend on how its foreign business partners treat it, now when the US military operation has been scale down although it may continue for a very long time. Islamabad still hopes that Washington will adopt a more helpful attitude, especially toward buying its textiles that make 60 percent of its global exports, and is the biggest employer of manpower and capital goods. Commerce Minister Abdul Razzak Dawood during his visit to Washington expressed his unhappiness about American attitude over textiles. “If Washington was willing to help us, it would have allowed me to tell our unemployed people that the United States is trying to help us create jobs. But, I feel frustrated over US inability to increase textile quotas for Pakistan, owing largely to the opposition from the American textile lobby and their supporters on the Capitol Hill.”

MoC officials point out to the fact that Washington has not rolled back import duties of more than 25 percent on cotton garments that would have enabled Pakistani producers to lower their prices and face up to their foreign competitors who have gained because of the price differential. They also state that Pakistan is loosing exports of ready to wear cotton garments, including shirts, to its competitors.

Washington, effective this year, has allowed Pakistan an increased annual textile quota of $143 million. It means only a seven percent increase over the past. EU has been rather more helpful, as effective Jan. 1, it increased Pakistan’s textiles export quota by 15 percent and allowed duty free entry. Additional exports alone will fetch Pakistan $150 million annually.

Pakistan has also made other bids to expand foreign trade with SAARC countries, including India under South Asian Preferential Trade Agreement (SAPTA). It has offered India duty exemption on hundreds of new export items, effective June 15. The customs duty exemptions that were already available have been doubled. At the same time, previously allowed exemptions have been enlarged. A 10 percent duty cut has been announced on 600 items importable from India. Customs duties on 685 items importable from SAARC countries, other than India, have also been reduced, ranging from 10 to 30 percent.

Pakistan has also allowed Iran and Turkey increased customs duty exemptions on their exports within the framework of Economic Cooperation Organization (ECO), as specified in ECO Rules of Origin and the Protocol relating to preferential tariffs among members of the organization. These items range from olive oil to coke breeze, and table and kitchenware to machinery to produce plastic products.

Considerable prospects are seen by Pakistani government and the business in projected large exports to Afghanistan for its reconstruction, ranging from construction material to steel products, as well as food to a variety of consumer goods.

Pakistan’s long border with Afghanistan and overland trade, as well as the fact that Pakistani ports are the only access to sea for landlocked Afghanistan, can sure the lowest freight rates and speedy supplies. Some of the international humanitarian organizations and aid-donors have already stepped up purchases from Pakistan for supply to Afghanistan. Exports of several hundred millions in dollars as well as Pakistani rupee that is widely accepted, are projected to take place this fiscal.

Industry, business and the government expect that exportable surpluses will be enlarged in fiscal 2003 as a result of removal of customs duties on 6,500 industrial raw materials and capital goods, reduction in the corporate tax rate and a range of incentives, both in the form of larger availability of bank credit as well as larger production of raw materials by the agricultural sector. The growth rate of Large Scale Manufacturing (LSM) industry is projected to rise to six percent in fiscal 2003, up from 4 percent in 2002.

On the top of this, considerable financial help is expected from the establishment of the proposed Ex-Im Bank. Dr. Ishrat Hussain, governor State Bank of Pakistan (SBP), the central bank, has proposed to the government to establish the bank. “The bank will be established with public and private participation in equity, and it will be operated by a highly professional management. It will provide long-term project financing as well as support Pakistani exports,” says Dr. Hussain. Export financing is currently available at a concessional eight percent, and formation of the Ex-Im Bank is expected to promote the foreign trade sector further in the days to come.

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