Growing exports in a dollar-starved economy.

Byline: Mohiuddin Aazim

Pakistan earned an additional $354 million in exports in July-December 2019 as foreign exchange earnings during this period rose to $11.53 billion from $11.18bn a year ago. This translates into an average monthly increase of $59m.

This is unacceptable. Prime Minister Imran Khan and our powerful establishment are unhappy. Mr Khan has instructed the Ministry of Commerce to ensure that a higher growth target be achieved in the next six months at every cost.

Unless exports grow by $200-300m a month from now onwards, a further cut in the trade deficit through a reduction in imports will not be sustainable. There are two reasons for this: first, a massive reduction in imports has already started hurting industrial and import revenue growth; and second, there is not much room for the further tightening of import tariffs.

Our trade tariffs are already far higher than those in regional countries. The State Bank of Pakistan (SBP) has acknowledged this fact in its first quarterly report for the current fiscal year.

If the trade deficit has to fall further - and it has to fall to keep the current account balance and foreign exchange reserves in shape - then that has to come from a mix of a surge in exports and a slip in imports. We also need to remember that the prevalence of higher import tariffs, particularly on non-essential goods, continues to discourage foreign direct investment. They also annoy our trade partners negotiating fresh deals with us.

We need to let raw material imports increase to achieve higher exports

Pakistan managed to cut the import bill by $4.79bn to $23.16bn in July-December 2019 from $27.95bn a year ago. That means it saved an average of $798m on monthly imports. This is optimal in our context as a steeper decline in imports in the future will make the task of reversing the declining trend in industrial activity almost impossible. In July-October 2019, the large-scale manufacturing output already receded by 6.5pc on a year-on-year basis.

Now the government must aim at accelerating exports while expecting that imports may not - in fact they should not - decline as fast as they did in July-December 2019. For achieving a faster growth in exports, we always need to let imports of raw materials increase. However, since we need to watch even a little rise in imports because of the paucity of foreign exchange, import substitution, a more productive use of imported stuff in exportable goods, higher value...

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