In this context, Structural Trade Policy Framework (STPF) 2009-12 is focused to address the challenges of Infrastructure deficit, particularly in energy and technological infrastructure, low labour productivity, insignificant foreign direct Investment particularly in manufacturing and export-oriented sectors, anti-export measures including higher in-put cost of exports as compared to imports, low level of economies of scale in the production processes, especially in SMEs, which account for a vast majority of the enterprises in the country. Structural Trade Policy Frame (STPF) 2009-12 has envisioned export growth target of 6 % for 2009-10 and 10 and 13 % for each of the successive years, which aims at improving Pakistan competitiveness ranking from 101 to 75.
On the other hand imports, eroding precious foreign exchange reserve, remained at very high level of US $44.91 billion during 2011-12 due to the ignorance of import measures in STPF. Pakistan's overall ranking in Global Competitiveness Index first dropped virtually by 20 points to 123 from 101 amongst 139 countries in 2010, 118 in 2011 out of 142 countries and now in 2012 is 124 while STPF targets set for Pakistan GCI ranking at 75th rank.
STPF also promises to address the problems like foreign exchange reserves, higher trade deficit, and consequently low investment, unemployment and low GDP growth due to absence of realist measure in STPF. It is however observed that despite increase in the over size of export, trade deficit was recorded highest at US $21.27 billion, which may be attributed to natural consequence of fiscal imbalances. The significant increase in imports is developing pressure on macro-economic indicators which are exhibiting weak performance. If the current surge in trade deficit is not capped, it may hurt country's economic growth. The higher trade deficit leads to outflow of capital, transfer of resources from the country and economic dependency.
Unfortunately, Pakistan's exports concentrate in few products. Textiles, other than made up articles and yarn emerged as export items in early 1990's and increased their shares in total exports ranging from 65% to 70%, which has gradually decreased to 55% in 2011-2012. The textile sector has low coverage of product category, particularly casual ware for men and women. Decrease in textile exports indicates some improvement in the exports performance of non- textile sector, however, earnest efforts are required to increase product diversification to improve export basket. Pakistan's merchandise imports were also affected by the global recession and grew by 16.43 per cent to US $40.414 billion in 2010-11. One of the major problems in Pakistan export is the dependence of textile and clothing exports upon few international export markets specifically EU and USA. Heavy concentration on these markets is a major concern for textiles and clothing industries.
Figure -1 shows substantial change in the composition of Pakistan export with the rise in share of petroleum, textile and fall in other manufacturer. The share of petroleum and textile increases from 4.9 and 53.3 per cent in 2009-10 to 5.4 and55.3 per cent in 2010-11 respectively. While the share of other manufacturer products fell from 18.8 per cent in 2009-10 to 16.1 per cent in 2010-11.
The directional pattern of Pakistan's trade has been persistently towards the countries that are historical partners of Pakistan exports and imports. Top six major export partners and top major import partners are shown in fig below, leading USA, UK and Germany being the top export partner of Pakistan while major import of Pakistan is from Saudi Arabia, Kuwait, and Malaysia and Japan.
The composition of imports also experienced changes during the same period, reflecting growing domestic concerns like inflation. The higher import bill during July-April 2010-11 is contributed by food group ($1,528 million), petroleum group ($678.3 million) consumer durables ($247 million), raw material group ($1039 million), telecom ($245 million) and other item group ($951 million).
The share of food and allied products import increased significantly to 13.4 per cent in 2010- 11. The share of Petroleum imports has also risen from 18.9 per cent in 2009-10 to 27.2 .per cent in 2010-11.
Although Pakistan's trade has grown significantly but growth in trade does not provide full benefit. One of the main reasons for losing benefit from export growth is the huge trade deficit which is recorded at US $21.27 billion during the year 2011-12. Adverse balance of payments erodes the foreign exchange reserves and on the other hand diplomatic efforts for building these reserves become useless on the backdrop of trade deficit hence, due to limited reserves it is not possible for Pakistan to face persistent deficit in trade. Many countries have trade deficit; this is not unusual but a deficit financed through borrowing is unsustainable in the long term. A trade deficit may help during expansion but it does not support when economy passing through a recessionary phase.
If the deficit is symptomatic of a lack of competitiveness in those sectors of the economy exposed to international trade, then specific policy measures may be required to help correct the deficit. A group of economists is of the opinion that due to structural problem in trade, exports of Pakistan have not witnessed enough improvement as compared with imports, which has negatively affected the term of trade, resulting problems of balance of payments.
As mentioned earlier, Pakistan's export concentrate into few products specifically cotton and rice which constitute major portion about 60 per cent of the export of Pakistan. Both of these products fluctuate seasonally because of flood, shortage of water, environmental change, and calamities etc and thereby affect the production of these products significantly. To improve the share of these two products in the export basket the performance of agriculture sector need to be enhanced which presently contributes at a low level of 1.2 per cent in the GDP.
For quantum leap in exports, besides other measures, Pakistan need to shift its exports pattern from raw material to finished goods, value addition and brand development. The weaknesses in the infrastructure like in- efficient transportation mechanism and frequent power break down interrupt the production processes, making it difficult for the exporters to meet their delivery time lines. Government should also provide strong infrastructure to the exporters like transport and communication, roads highways, powers and well functioning ports.
Doing business in Pakistan, which although, is relatively high as compared to its major competitors, is a problematic areas particularly for new enterprises. Pakistan's rank in World Bank Ease of Doing Business is dropped by 8 ranks to 83 in 2011 from 75 in 2010. There is also need to simplify the tax and tariff for exporters and consider other measures to provide level playing field to its exporters. The Government has an important role to play in this regard by providing the exporters a level playing field in the major countries and regions through effective trade diplomacy. The countries across the world are engaging themselves in the different regional and bilateral trading agreements to get the preferential or free market access. The Government should also enter into such Preferential Trade Agreement (PTAs) and Free Trade Agreement (FTAs) with countries having more potential for Pakistani export products in addition to successful implementation of the agreements already entered. Pakistan should also invest in R& D that will help in technological advancements and improve competitiveness, diversify products according to the market demand.
Imports should be based on raw materials and low value products that can help in local manufacturing and reduce the trade deficit. If raw materials and machinery used in domestic productions are supplied by domestic industries (local manufacture) this will increase demand for their products, besides creating more employment opportunities.
Finally, higher export growth helps in achieving higher economic growth. Comprehensive system of export compensation should also be introduced and at the same time some concrete measure are required to limit imports by particualrly avioding such products, which are locally manufactured and are avilable in adequate quantuity to mee the local demands.