EDITORIAL: Minister of Finance Muhammad Aurangzeb presented an outdated growth model under considerable threat since Donald Trump began unilaterally imposing tariffs, including 29 percent, on Pakistan: export-led growth is the only way forward. This statement is all the more baffling as Pakistan’s remittance inflows, the other major desired form of foreign exchange inflows, are not only comparable to exports but have exceeded exports during several months this year.
He also appeared to be unaware of the fact that Pakistani exports have an inbuilt imports’ component, unlike remittances. And equally well known is the fact that the steps aimed at enhancing exports, at considerable cost to the taxpayers, have cyclically led the country into higher imports, resulting in a rising trade deficit which, in turn, necessitated going on an International Monetary Fund (IMF) programme. Pakistan is currently on its twenty-four IMF programme, which indicates that this vicious cycle has been repeated twenty-four times.
One would urge Muhammad Aurangzeb to review the current trade deficit figures, which have begun to creep upwards after an initial surplus sourced largely to administrative measures, much to the chagrin of the IMF, or a rise in the international price of our exports. These measures were considered necessary, given our low foreign exchange reserves that, as per the Governor State Bank of Pakistan, are likely to be 14 billion dollars by the end of the current fiscal year though this good news is tempered with the fact that the country has 16 billion dollar rollovers from the three friendly countries — China, Saudi Arabia and the United Arab Emirates.
Data indicates that July-April last fiscal year the trade deficit was negative 19.6 billion dollars, while in the same period this year the deficit has risen to negative 21.351 billion dollars.
To add to this disturbing milieu, the IMF in its October 2024 documents titled ‘Request for an Extended Arrangement under the Extended Fund Facility’ maintained that “the government’s intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors. Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.”
Exporters and other productive sectors are, as is the usual practice prior to the finalisation of the budget for next fiscal year, meeting with the decision-makers — the Finance Minister as well as the Chairman of the Federal Board of Revenue seeking their endorsement of the proposed measures.
However, it is relevant to note that Pakistan’s two economic team leaders — Muhammad Aurangzeb and Governor SBP — signed off on the Letter of Intent submitted to the Managing Director of the IMF pledging that “the policies set forth in the attached Memorandum of Economic and Financial Policies (MEFP) will guide the successful implementation of our programme.”
The MEFP noted the government commitment “to ensuring that the Special Investment Facilitation Council does not propose, nor that the government provide, regulatory, spending, or tax-based incentives of any sort, or any guaranteed returns, or take any other action that could distort the investment landscape… . As we continue our efforts to improve efficiency and provide a level playing field for investment, the government will refrain from providing companies fiscal incentives such as tax breaks or other subsidies (including for credit).”
It is important to note that Pakistan exports its surplus rather than setting up productive units that are dedicated to exports. There is, therefore, an urgent need for a transition from the existing productive base which as noted correctly above by the IMF has failed to become the engine of growth with incentives weakening competition and trapping the country’s scarce resources in chronically inefficient industries.
Copyright Business Recorder, 2025
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