Amid the economic gloom, Pakistan’s IT exports continue to provide some light. The latest central bank data show that core IT exports (computer services, computer software sales, software consultancy services, hardware consultancy services, etc.) had reached $1.9 billion in the Jul-May period of FY22, reflecting year-on-year growth of 28 percent (or incremental exports of $415 million).
These exports averaged $174 million per month over this period, compared to $139 per month average seen during FY21.At this pace, core IT exports are presumed to cross $2.1 billion (including month of June) in FY22, delivering nearly half a billion dollars in additional forex to the country in a tough time. However, there is a slowdown in growth in the month of May 2022, which may carry into June and beyond.
Based on the SBP data, the overall ICT exports – which include core IT exports, telecommunication services exports, and call-center services exports – had reached $2.38 billion in 11MFY22, thereby growing by 25 percent year-on-year. These exports may reach close to $2.7 billion in entire FY22. However, May 2022 numbers for overall ICT exports were disappointing, showing negative year-on-year growth for the first time in a given month since August 2020.
The target of $3 billion per annum mark for overall ICT exports will have to until FY23, it seems. During FY22, there has been a deceleration in growth in ICT exports, across the three segments. Meanwhile, the outlook for the near future is fraught with local-economy challenges as well as global-level risks that may affect demand coming in from Pakistan’s major IT export markets in the West and the Gulf.
Domestically, continued power outages and possible connectivity-related service issue thereof may hurt competitiveness of IT exporters. These firms need assured, reliable supply of electricity and broadband services, so they can provide round-the-clock services to their clients abroad. This situation may especially impact IT firms that had grown profitably-accustomed to a significant chunk of their employees working from home during the pandemic. Without reliable utility infrastructure, firms may lose their edge.
Globally, it was previously anticipated by experts that there would be some degree of slackening in Covid-era rush of digital transformation projects by industrials, consumer-facing businesses and workplaces, as shoppers returned to stores and workers went back to offices post-easing of restrictions. While 2021 ended with booming GDP growth rates across North America, Europe and the GCC, now there is risk of recession in developed economies, as central banks try to tame the spirits of commodities-led inflation.
Reduction in aggregate demand abroad may indirectly lead to reduction in IT budgets at foreign firms, thereby impacting IT exporters in places such as Pakistan. If the foreign-origin sales are reduced, local players may have lesser incentive to remit a large part of their export proceeds back home, especially at a time when the industry’s demands for favorable tax treatment in the budget were not met. The declining PKR also tends to delay timely remittance back home. Let’s see what FY22 has in store for IT exporters.
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