ISLAMABAD, 2 February 2004 — A very healthy increase in imports that overshoots the fiscal 2004 targets, on the back of larger production and exports, is further encouraging Pakistan’s foreign trading partners to do more business. Imports, as of now, are likely to exceed its annual, 2004, target of $12.8 billion.
During the first half of fiscal 2004 — that ended Dec. 31, 2003 — imports rose sharply by 14.19 percent compared to the like period of last year. Imports during this period, according to Commerce Minister Humayun Akhtar, totaled $6.609 billion. As the economy surges, production is expanding, that in turn requires larger imported industrial raw materials and machinery. The government statistics indicate that these imports were in “the non-oil, non-food” category.
The biggest single item of imports, at the moment, are the industrial raw materials, says Akhtar. “Its a good sign of the economy picking up,” he says. While petrochemicals are imported from various industrial regions, industrial raw materials and machinery are being imported from United States, UK, Germany and other European sources, as well as Japan and China.
Exports also rose, a healthy 13.15 percent in the same six months, to $5.881 billion. The target for 2004 is $12.1 billion. The export growth in December alone was 21.05 percent, against the same month of the last fiscal.
The larger export sales took place in spite of the fact that Pakistani rupee has appreciated more than 11 percent against the dollar since 9/11. That made exports comparatively costly in terms of the greenback. The present increase in exports is due to increase in volume as well as improvement in unit value.
Also the exporters and businesses are pushing to new foreign markets, as well as marketing new items.
The continuing widening of imports have widened the half-year trade deficit by 23.43 percent, compared to the like period of fiscal 2003, to $728.33 million.
But, with forex reserves rising to a record $12.7 billion businesses and the State Bank of Pakistan (SBP), the central bank, are not worried of footing the bill of growing imports.
The SBP says, 88.98 percent of imports are now being funded by Pakistan’s own current exports. However, this is a shade — 0.82 percent — lower than the funding of imports, by exports, in the like six months of fiscal 2003.
Pakistan, in recent years, has been shooting for a zero trade deficit, but it cannot be achieved in view of growing imports. It is also unattainable because the business, industry and the government, will like to let the economy grow, rather than shooting for the narrow target of fully eliminating the trade gap.
The export drive is helped by numerous bilateral Free Trade Agreements (FTAs), Islamabad has signed with a number of countries. Akhtar is very upbeat about these FTAs. “The multilateral agreement signed by seven-nation, at Islamabad Summit, in January will help boost trader significantly,” he says.
The Summit of seven member nations of South Asian Association for Regional Cooperation (SAARC) signed South Asia Free Trade Agreement (Safta) to be effective Jan. 1, 2006. It will expand trade between its signatories, India, Pakistan, Bangladesh, Nepal, Sri Lanka, Maldives and Bhutan. Safta will cut tariffs to a maximum range of zero and five percent. The region’s two biggest countries — India and Pakistan — hope to raise their mutual official trade to $1.5 to 2.0 billion a year.
During President Pervez Musharraf’s just-conclude visit to Ankara, Pakistan and Turkey agreed to sign a Preferential Trade Agreement (PTA) within one month. The two countries are planning to raise the bilateral trade to $1.0 billion within the next two years.
Turkey will also assist Pakistan in establishing and developing export processing zones (EPZs) and small and medium enterprises (SMEs) because of what Akhtar described as Ankara’s “good experience in these fields.” Finance Minister Shaukat Aziz said, Ankara and Islamabad have also agreed to establish a $25 million joint investment companies, with each providing half of the money.
Tehran and Islamabad are currently finalizing a PTA to expand trade and improve the balance of trade between them. They already have exchanged the concessions list of items, rules of origin and other procedures for PTA operation. Islamabad and Tehran are likely to provide tariff concessions on nearly 400 items.
In order to promote a large variety of its high quality industrial and engineering products and consumer goods, in the Gulf, Pakistan will hold a single country exhibition in Bahrain from Feb. 17 to 20. The government of Bahrain has assured its “full support to the exhibition,” Liaquat Ali Jatoi, minister for Industries and Production says. On the sidelines of the exhibition, government and business leaders will also brief Bahrain and Gulf investors on high-yielding investment opportunities in Pakistan.
The government and banks have taken several initiatives to ensure cheaper financing for foreign trade, boosting export, enlarging domestic production and bring down the cost of doing business in Pakistan, across the board.
SBP’s easy money policy, for instance, has helped the commercial banks to lower the cost of lending from 21 percent to around 5 percent over the last four years. SBP has reduced the cost of export finance from 13 to 3 percent.
Textiles contribute nearly 67 percent to Pakistan’s export earnings. The industry has invested $4.0 billion in its upgrading and expansion over the last three years, in order to face the challenges of quota-free world of WTO. Until 1990, 70 percent exports of the textile sector consisted of cotton yarn and grey cloth, but for years that has been reduced to $1.0 billion a year. The rest of its $6.0 billion exports are ready-to-wear garments and other value-added categories.
In order to expand export, and diversify imports, Islamabad is looking to a number of countries. Nearer home, trade with Afghanistan, after years of stagnation, is growing.
Trade between them will rise to $1 billion in 2004. Islamabad’s exports to Kabul in 2003 were $580 million. Kabul’s exports to Islamabad were just $40 million. Transit trade volume to landlocked Afghanistan was $300 million. International agencies estimate the Afghan trade in 2000 was $2.5 billion, mainly unofficial exports to Pakistan. It means nearly 90 percent of Kabul’s official and unofficial imports were re-exported mainly to Pakistan, and some other neighboring countries.
Pakistan, too, has announced a $100 million assistance that, among other projects, includes construction of the vital trade and travel link of Torkham (Pakistan) to Jalalabad (Afghanistan). Construction is scheduled to start this February.
Other projects include construction of academic blocks at Kabul and Jalalabad universities, an artificial limb center at Kandahar, a kidney center at Jalalabad, and an information technology center in Mazar-e-Sharif.
