Industry deserves inducement.

Byline: Nasir Jamal

Chances are that Pakistan will achieve a primary surplus, build up enough foreign exchange reserves and bring down the current account deficit to a safer level by the conclusion of the 39-month $6 billion Extended Fund Facility (EFF) from the IMF.

The long-term sustainable economic recovery, however, will continue to hinge on the country's ability to boost its exports and attract domestic and foreign direct investment in the manufacturing sector. Otherwise, we may once again be knocking at the doors of the Washington-based lender of last resort shortly after the conclusion of the programme.

Both the previous and present governments have made efforts to increase exports during the last two and a half years. These include the implementation of the zero-rated regime for export-oriented industries, cash subsidies to exporters under the Prime Minister Exports Enhancement Package, improvement in energy supplies, partial payment of tax and other refunds, exemption of import duties on raw materials used in export production and substantial reduction in the prices of electricity and imported gas.

These actions have helped slightly increase goods exports in the last two years with value-added textiles leading the modest recovery. Although the results of such measures are expected to appear in the next six to 12 months, it will be silly to expect a major turnaround in the next couple of years given low productivity, small share of value-added products and decrease in global demand.

Falling investment in manufacturing in the last one decade is at the heart of the country's present economic woes

Some major textile groups encouraged by the reduction in energy prices plan to invest $2 billion in the next two years in the value-added industry. They aim to take full advantage of the favourable policies to upgrade technology, expand capacity and diversify product range. This kind of investment is estimated by the industry to create at least 100,000 new jobs.

However, the prospective IMF programme appears to have dampened the investors' enthusiasm and many have put their investment projects on hold. They fear the government may reverse their zero-rated status to bring them into the proposed value-added tax regime and withdraw energy subsidies and other export incentives under the yet-to-be-announced EFF agreement.

Many fear that the IMF is going to insist on using the exchange rate mechanism alone to incentivise exporters as the government...