If we can start from an economic policy perspective, policymakers are asking the wrong question: how to increase exports? Instead, the more pressing and immediate question that they must address is: how to expand economic productive capacity? The World Bank, in its recent report, assessed Pakistan’s annual export potential at $88.1 billion.

With the current exports hovering over $32.5 billion in FY22, the potential works out to be about four times the current level. The size of the missing exports is therefore quite a startling disclosure. As stated above, our exports in FY22 were $32.5 billion compared to India’s $680 billion. For a fair comparison, our per capita exports were $140, compared to India’s $483.

Pakistan’s level of per capita exports in FY22 was achieved by India in 2006. This means that we are 17 years behind India in terms of export performance. Undoubtedly, we have a lot of economic potential. Our country is located at the crossroads of South Asia, Central Asia, China, and the Middle East and is, thus, at the center of a very large regional market with a vast population, diverse resources, and untapped potential for trade.

But our concern here is with long-term performance and not the drastic fall in exports in the current fiscal, which is due to a default-like situation triggered by balance-of-payments, fiscal, untapped export potential sectors, and political crises.

The ADB (Asian Development Bank) says Pakistan is a relatively large country; however, its trade openness remains remarkably low. Citing an example, it says countries that have GDPs comparable to those of Pakistan but with much higher trade-to-GDP ratios include the Philippines, the Netherlands, and Viet Nam. India’s GDP is almost 10 times larger than Pakistan’s, yet trade plays a greater role in its economy.

The dominance of textile products in Pakistan’s exports raises the issue of diversification—or potentially the lack of it. Concentrating too much on only a few traditional sectors or products poses risks to an economy since shocks to the dominant sector can more easily cause an economy-wide recession. It is about time the government adopted a policy paradigm that incentivizes the generation and production of new products with a competitive and comparative advantage.

Moreover, activities, but not sectors, should be supported, and every penny subsidized must be accounted for in terms of overall VFM (Value for Money) in dollars. For instance, while being dependent on gas subsidies, our fertilizer industry has a significant price advantage if exported. However, this billion-dollar sector is being hampered by export prohibitions and capacity development (to ensure surplus generation).

No export strategy can succeed without dovetailing import policy into it. An export policy looking in one direction and an import policy looking in another will keep working at cross purposes and pulling each other down. Tariffs and other duties on imports ultimately serve as a tax on exports, up to four times higher as they are applied to intermediate inputs.

Furthermore, “average tariffs on final goods in Pakistan are 50 percent higher than the average for South Asia and almost three times as high as the average for East Asia. If these inputs are costly due to higher tariffs and other duties, then ultimately manufacturing and exporting costs will be higher and may out-compete our exporters in the international market”.

It is, therefore, important to keep import duties on intermediate inputs very low. If these are brought down, many more manufacturers may start exporting for the first time, and existing exporters will likely increase their exports. Comparably, some of the intermediate inputs could be produced at home as well. Reduced duties will create competition for local producers, who will then need to improve their output and standards. They will continue to produce low-quality goods at relatively higher prices under high tariffs, which will limit exports.

It may seem that high import duties are good for promoting import substitution, but our 75-year history shows that protection accorded to domestic manufacturers for a long time makes them dependent on high duties. In this environment, the process of export promotion becomes very difficult, and the overall productivity of manufacturing declines.

Other structural problems that restrict our export sector include an untenable tax structure, excessive corporate restrictions, and insufficient access to domestic financing. The government has been obtaining loans from commercial banks for years, leaving minimal financial room for medium-sized or even large exporters.

The SBP should prioritize addressing this rent-seeking behavior on the side of banks and ensure that the ratio of loans taken by the government relative to those of the private sector is restricted. New financial products must be created, focusing in particular on small and medium-sized businesses (SMEs), and credit rating systems must be made transparent to allow for access to loans and insurance services.

To cut a long story short, our innovation in technology and product diversification is limited. Our key export has remained textile for decades.

Our market channels and customer reach are inward-oriented and passive. According to a fair analysis, an additional $60 billion in exports could generate around 893,000 jobs and $1.74 billion in taxes in the agriculture and manufacturing export sectors.

These are the numbers that every government should seriously look at and work on, particularly the current functioning government that is looking for some out-of-the box solutions to turn around the economy.

Copyright Business Recorder, 2023

Muhammad Sheroz Khan Lodhi

The writer is an economic analyst.

Email: [email protected]


Comments are closed.

Raj Aug 09, 2023 07:11am
“ we are 17 years behind India” Common fallacious assumptions in any Pak analysis. Similar claims on economic liberalization starting in 1991. You conveniently ignore the fact robust democratic institutions, political system, educational and societal infrastructure were being laid since 1947. In fact since before 1947. While Muslim Leaguers were whipping religious frenzy, Congress was planning econ development from 1930s.
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Faisal Kandhro Aug 09, 2023 05:48pm
@Raj, the quality of life in Pakistan is still better than those 1.4 billion Indians, we have as good educational institutions as India has, the only difference b/w Pak and India is that you have a good services sector almost 40% of your exports are service related thanks to Americans who outsourced you some IT companies.
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Arifa Noor Aug 09, 2023 07:53pm
@Faisal Kandhro, I completely agree with you however, cult leader Niazi is hell bent to destroy this. Hope he remains jailed indefinitely.
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Suhail Aug 09, 2023 08:02pm
@Faisal Kandhro, whatever you said is correct brother. This is all thanks to Pakistan army and China. You and I and all Pakistanis should be grateful and indebted to Pakistan army forever.
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M Qureshi Aug 09, 2023 08:04pm
@Faisal Kandhro, Finally someone who spoke the truth. Inshaallah may our standards remains the same.
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test Aug 09, 2023 10:20pm
Increase exports ??? Hahaha 1-How many local manufacturers of vehicles, electronics, computers, heavy machinery, microchips, satellites and laser guided weapons are there in Pakistan ? Zero. 2-How many assemblers are there in Pakistan ? Plenty of and all they do is import nothing else. 3-How many forbes 2000 and fortune 500 companies are there in Pakistan ? May be 1-2 4-A nation whose economists main job is to beg for dollars and then use those dollars to import is pretty much fucked up. 5-The standard of education of Pakistan is so much worst and outdated that we should forget about competing with anyone else. 6-Do you think matric pass, fa pass, ba pass with failed degrees can run the country towards advanced local industrialization ? Ridiculous. 7-Nepotism, Tribalism, Feudalism, Eliticism will lead to more and more destruction. 8-The country is called Elite Republic of Pakistan not Islamic Republic of Pakistan 9-Elite Bank of Pakistan is called instead of National Bank of Pakistan.
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test1 Aug 09, 2023 10:26pm
Instead of increasing of exports from the past 75 years the common priorities from Liaquat to Ayub to Bhutto to Zia to Benazir to Musharraf to Zardari to Nawaz to Imran was to beg for dollars by licking western shoes so that the elite class of Pakistan can maintain their lavish lifestyle at the expense of suffering of local manufacturing and local industrialization because what to think when begging is all over your mind. Party A to Party Z everyone has gone to IMF because elite class collectively has a policy of begging. An elite class collectively choose an elite member to beg for dollars. They are doing it from the past 75 years. Elite class never suffer anything because the suffering is for common man. From Lucky to Dawood to Engroo to Bahria Town to DHA to Big Banks to Big Telecom to Fauji to PTCL to PIA everything is controlled and run by the elite class. A common man has no say in it. The purpose of elite class is to live at the suffering of the nation its industry & its people.
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Raj Aug 09, 2023 10:31pm
@Faisal Kandhro, Ind exports total 750 Billion$ last yr, 900 B$ next yr. India exports in 2 weeks what you export in a year. This baseline misplaced, fake superiority complex is why pak where it is today!! Seriously hilarious. Keep at it. Per capita much larger US/ foreign aid, massive foreign loans, very little or nothing to export is the reality of Pak. There are multinational university rankings, Pak nowhere in the picture compared to India. If you did you will have Pak CEOs, not Indian CEOs running companies :-).
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Hassan Ali Aug 11, 2023 10:32am
Hello sir
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Yasmim Aug 14, 2023 12:05am
This explains where we are going wrong. Aiming to increase exports and pressing the wrong buttons. Not learning from other countries experiences, and aiming to increase exports without measures for structural changes will keep failing us and reaching the 60$ billion mark will only remain a dream
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