Export orientation of Pakistan’s economy - Yusuf H Shirazi - Saturday, March 05, 2011

Source : http://thenews.com.pk/TodaysPrintDetail.aspx?ID=34402&Cat=9

Pakistan’s average annual exports have been steadily rising. On the face of it, this improvement has been quite impressive, but the optimism in this regard must be viewed in the light of inflationary expansion of the exports value. Thus, though the unit value of Pakistan’s exports has been going up, it has been hardly enough to keep up with the imports value – with the trade deficit rising from $4.51 billion in FY05 to $11.53 in FY’10.

Even if the inflationary implications are ignored, the deterioration in the export orientation of Pakistan’s economy is quite clear from other facts: Pakistan’s annual average gross national product, at the current factor cost relative to the gross national product, on the whole, is far too behind. Furthermore, Pakistan’s commodity export earnings have been going down, year after year.

The gross national product at the current factor cost registered an annual compound growth rate between the averages of the earlier plan periods (now there are no plans, as such). The corresponding growth rates for average annual exports respectively were, however, low.

Pakistan economy’s export orientation coefficient, then, was slightly better, but it did not compare favourably with Tunisia, Burma, Nigeria, the Philippines, Sri Lanka, Morocco, Tanzania, Iraq and Malaysia. In most cases, however, this comparison with other developing countries is not meaningful, because export orientation is generally high in countries with greater commercialisation in the economy, optimum crops plantation and dependence on extractive mining operations, particularly oil and gas.

Pakistan’s mineral resources – oil, gas and copper, much less gold – remain unexploited. Whatever the case, Pakistan is basically an agricultural economy. Before Partition, the area now comprising Pakistan had fed the entire India. Even now when the floods have affected the crops, Pakistan is exporting rice and wheat. And the cotton prices are so high that, together with wheat and rice prices – reinforced by global revival – it has fed the entire rural area, with unusual liquidity, so as to give a fillip to consumer demand seldom seen before!

Pakistan’s major exports consist of textile, rice, leather goods, sports goods, chemicals and carpets. More than 50 per cent of its export earnings still come from textiles – now yarn being in the forefront. Only if Pakistan focuses on agriculture in the right way can it replace the import with export economy. The current year is expected to record export of over $25 billion but, on the other hand, imports are also expected to exceed exports – $35 billion at the close of the year. The deficit finance – July-December FY10, $6.895 billion – is not any pride whatsoever. The existing situation can be remedied through exploration of mines and optimising agricultural growth and export

On the other hand, expansion in commodity export earnings would have been impossible without the export performance of manufacturing industries, despite the average annual value of manufactures exported continuing to go down.

However, the exports have been falling and imports increasing, adding to the trade deficit – leading to inflation of over 15 per cent now, among others. While the private sector has always been starved of funds, the public sector has been thriving on borrowings – at Rs4,958.8 billion now – an unprecedented level against the private sector’s Rs2,566.03 billion vis-a-vis Pakistan’s total debt of Rs10,745.1 billion. It is hardly desirable for the economy.

In a situation like this, perhaps, the only course remains increased reliance on aid, loans and credit, which, in essence, has been worsening the economy. These loans and credits, in fact, help the economies of the developed world more than the economies of the developing countries. This is achieved through massive import – of machinery, raw materials, if not food – the PL480 of the USA – depriving the recipient countries of local investment, production and export. This has been leading to unemployment and poverty from which the developing countries traditionally suffer. The solution for the developing countries lies in reliance on education, healthcare and socio-economic infrastructure – more so in Pakistan.

This approach will add intrinsic value, which has always been deprived through the so-called aid, loans and credits from the developed world. Unless such remedial measures are taken, the gulf between the haves and have-nots will continue to increase. The developing countries – and Pakistan, in particular – must realise this phenomenon, and the sooner the better. That is the key to an export-orientated economy and self-reliance. The aid-giving developed world, too, has started emphasising that recipient countries should rely on their own resources first. With the highest-ever foreign exchange reserves now of $17.5 billion, with the current account during the July-Dec 2010 period at a surplus of $26 million against a deficit of $2.75 billion in the same period a year ago, perhaps, Pakistan can make a beginning – with socio-politico-economic harmony.

Socio-politico-economic harmony will depend, among others, on development finance through development finance institutions like PICIC and IDBP that provided long-term development finance. Now there is none. The commercial banks are doing it, but not adequately enough. It is not the job of commercial banks either. However, they are not only providing development finance of whatever worth, but all sorts of non-commercial banking – investment banking, leasing, to say nothing of asset management, and mutual funds. Jack of all trades, master of none. It is all at the cost of commercial banking, per se. The regulators may take note of it. The sooner this anomaly is rectified the better for the export orientation of the economy, and for the socio-politico-economic development of the country as a whole.

An immediately available solution is facilitating remittances, now roughly $1 billion per month and taxing the 57 per cent underground economy, under-invoicing and tax evasion, if not smuggling. The World Bank’s recent report claims this deprives the exchequer of over $500 billion annually. This will be equal to, if not, more than the aid, loans and credits which are always given at a high cost to the economy. Taxing the underground economy will reinforce localisation of investment, production and exports – glocalisation, creating employment opportunities, providing the roti, kapra aur makaan (bread, clothing and shelter) promised to the masses of people, not globalisation, which serves global interests. It will enable also much sought after access to the developed world based on outright merit.

The writer is the founder/chairman of the Atlas group of companies.

Email: yhs@atlas.com.pk

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