EDITORIAL: Caretaker Commerce Minister Gohar Ijaz’s interaction with the business elite the other day — to hammer out ideas and seek proposals that will help push exports from the current $25-30 billion band to $100 billion in five years – didn’t identify anything everybody didn’t already know.
But it did go to show that some things cannot be put off any longer if the economy is to be turned around; like FBR (Federal Board of Revenue) reforms, ease of doing business, dismantling illegal imports through ATT (Afghan Transit Trade), mis-declaration, under-invoicing, compliance, etc.
Such debates invariably open with laments about “tax reforms” and “tax net”, quite naturally, since expanding the exchequer is central to growing the economy, which will push up production and exports.
But this is easier said than done. According to the ministry’s own calculation, the economy would have to grow from its present size of about $350 billion to $1 trillion over the next half decade to achieve the ambitious $100 billion export revenue.
That will require a substantial increase in tax revenue just to feed the growth. And the way the government is going about meeting stiff IMF (International Monetary Fund) revenue targets, by relying almost exclusively on indirect taxes, it’s not at all clear how any reforms would be instituted or even if there is any space or time for them under the strict glare of the Fund.
Also, the industry is quick to point to the need for tax reforms, but often becomes the biggest hurdle in their way when its time to cough up the money. Indeed, the minister made several references to times when specific industries were the first to throw up their arms in frustration when they were delivered the reforms they had asked for.
That’s why the economy is never put on the road to growth. Tax reforms never see the light of day, there is never any additional fiscal space, and production and exports remain stifled.
All that goes a long way to explain why the businessmen’s other main demand, incentivising industry, has also become something of a non-starter.
The government could not afford to sprinkle any subsidies even if it weren’t forbidden by the IMF. It is caught in a vicious dilemma where it needs to help businesses grow and feed the economy, but there’s nothing in the bank to help them with.
The best it can do, for the moment, is restore confidence in the local economy. And it’s done that by cracking down on smuggling, especially illegal dollar movement, which put a floor under the collapsing rupee and brought welcome optimism to the capital market.
Perhaps one important point that nobody made during the exchange was about the need to turn to production strictly for exports; framing production policies according to international market demand instead of simply exporting excess production.
Such textbook initiatives are essential to diversify the export basket, which, as of June 2023, was still $17 billion textiles and just $5 billion non-textiles and agri products. Unfortunately, such smart thinking was never incorporated into policy and Pakistan’s export trends remained more or less the same for more than half a century.
There’s no denying that just about everything about the export policy needs to change. Yet the commerce ministry must be careful about the targets it sets.
Clearly, there’s still room for manoeuvre, despite all the constraints, and the government must help businesses identify fresh markets and products to sell into them. It must also be realistic about the results. Therefore, while it is hoped that the country achieves the $100 billion export target very soon, it’s unlikely to happen in the next five years.
Copyright Business Recorder, 2023