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BR Research

SBP’s thoughts on weak exports

That Pakistan needs to find new products and markets to export aren’t exactly an epiphanic policy advice. The advice
Published July 4, 2017

That Pakistan needs to find new products and markets to export aren’t exactly an epiphanic policy advice. The advice is decade-old at the very least; it can be traced way back to central bank’s State of Economy (SoE) reports during the Shamshad Akhtar years. So when the central bank’s latest SoE report advises the government to diversify its products and markets, the bank is not really saying anything new. The only difference is that ten years ago the consequences of failure to diversify was more of a warning than a reality; today’s those warnings have come to life.

Pakistan’s weakness in the management of exportable economy is visible across the board. At the one end, the central bank does not expect any “bright prospects” for wheat exports, even though a bumper crop is being added to the already sufficient stockpile, “as the price differential between domestic and international market is unfavourable at this stage.”

At the other end, despite excess stock in hand, the sugar industry could not exploit export opportunities “due to quantity restrictions and short time limit, despite possessing ample carryover stocks and record production.” Meanwhile, “unavailability of logistic infrastructure for exports” coupled with its higher domestic production cost made fertilizer exports rather challenging, whereas the story of falling cement export is already quite well known.

The central bank’s SoE 3QFY17 also highlights how Pakistan’s export recovery lags behind its peer economies. “Like many other emerging markets (EMs), Pakistan also faced a challenging export environment over the last two years. However, many of these external dynamics had reversed by mid- 2016”, due to a confluence of factors, from which Pakistan’s export recovery hasn’t benefited as much as her peers have.

One reason behind Pakistan’s weak export recovery is that’s her clothing and home textile products are fetching lower unit values in the key EU market than those of its competitors. The SBP says “both the product quality and competitive pricing issues seem to be at play here”. It’s another thing that the central bank conspicuously remains silent on the exchange rate’s impact on exports.

The graph reproduced from central bank’s latest SoE report shows that Pakistan’s high value-added exports to advanced economies face tough competition from her competitors. To make products more attractive and maintain their product share in the international market, Pakistan’s exporters slash their prices, says the SBP.

“This situation has been clearly visible in the EU market this year, where Pakistani exporters have received lower unit prices for clothing items (both knitted and woven clothes), as compared to their regional competitors.” Bear in mind that this performance is despite a host of policy support measures available to the textile industry.

Short of a miracle, the dynamics underpinning weak exports aren’t going to change anytime soon. Finding new markets and new products to sell overseas isn’t going to happen without improving governance, institutions and policies. All these things are slow, difficult and often painful – and least likely in the last year of government especially when the ruling family is struggling for its survival in the courts. The moral of the story: package-based export policy and management is not going anywhere anytime soon.

Copyright Business Recorder, 2017

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