Home »Editorials » The export slide

During the meeting of the National Assembly Standing Committee on Finance representatives of the textile sector - the largest contributors to export revenue in the country - stated that the Sharif administration must be held responsible for the slide in exports. The list of contributory factors listed by the textile sector was exhaustive ranging from the high cost of Liquefied Natural Gas (LNG) to package materials not zero-rated to non-clearance of refunds to the government increasing borrowing from the commercial sector thereby squeezing out private sector borrowing. These decisions can mainly be sourced to the Ministry of Finance with the exception of the high cost of LNG sourced to the 15-year deal by Pakistan State Oil (PSO) under the administrative control of the Ministry of Petroleum and Natural Resources.

The policy decision that has had a major negative impact on the country's exports and which is attributed to a decision by the Ministry of Finance is a sustained overvalued rupee. The rationale for an overvalued rupee by the Ministry of Finance is patently evident: to understate the budgeted allocation on the rising external debt servicing and payment of principal when due. Commercial loans acquired from abroad have reached alarming levels, estimated at around 2 billion dollars, accounting for net outflows in the second quarter of the current year.

The International Monetary Fund (IMF) under the three-year 6.64 billion dollar Extended Fund Facility completed in September last year did, in several of the mandated quarterly reviews, identify an overvalued rupee as a concern. However, the Fund never set a time bound action for the reversal of this seriously flawed policy decision which would have necessitated either a refusal to extend a tranche (as happened during the tenure of the PPP-led coalition government for failure to implement energy and tax reforms) or the grant of a waiver.

That an overvalued currency will dampen a country's exports is a well acknowledged basic economic principle understood by economic managers throughout the world which explains why the governments of China and India, to name just two of our competitors in the international market, depreciated their currencies in recent years to ensure their products remain competitive in recession-ridden West. Much to the embarrassment of the people of Pakistan the Federal Finance Minister Ishaq Dar, while on his current visit to Washington DC, boasted that the Pakistani currency remains strong and has not depreciated by more than 5 percent during his tenure.

In a rebuttal to an article that appeared in Business Recorder, the Ministry of Finance maintained that as regards a decline in the country's exports, it is primarily due to weak demand in major export markets. Not only Pakistan, but most emerging markets (EMs) have witnessed a drop in their exports. However, in a bid to save the external trade, the government has introduced a bailout package of Rs 180 billion for export sector to positively impact textile sector. Needless to add, the export package announced in January 2017 applicable till June 2018 has not yet achieved the desired result as exports continue to slide and a rise in input costs are inbuilt due to failure to implement governance reforms in the power and tax sectors.

Sadly, Prime Minister Nawaz Sharif, according to leaked Cabinet minutes which have not been refuted, has held the Minister for Commerce responsible for a decline in exports - a stance that is clearly unfair because of its inherent inaccuracy. But to hold the Commerce Minister accountable is as unfair as to hold the Minister of Finance responsible for the decline in exports. The reason: the ultimate responsibility for a sustained flawed policy decision must rest with the chair of the cabinet, notably the Prime Minister. One can only hope that immediate and appropriate measures are taken to rectify this flaw in our policy.



the author

Top
Close
Close