Widening Trade Deficit
ACCORDING to trade figures for the first nine months of the current year, the trade imbalance is not only persisting but widening with the policymakers taking care of the current account deficit, so created, by import-oriented foreign investment and by creating foreign debts. With exports at $12.4 billion and imports at $22.4 billion, the trade deficit has shot up to $10 billion, up from the corresponding figure of $8.67 billion last year. Imports continue to outstrip the pace of export rise in spite of rates of growth in both areas slowing down. The yawning trade deficit will also impact on the volume of foreign capital and financial inflows in the medium-to-long-term as these are ultimately determined by the country’s own capacity of foreign exchange earnings. The export growth, slowing since January 2006, has touched a four-year low while the imports are estimated at a record high of $30 billion for this year. It is a wake-up call for both the export-oriented industry and the government.
Partially affected by the withdrawal of Generalised System of Preferences and the 5.8 per cent anti-dumping duty on bed linen, textiles that contribute around 60 per cent of the total export earnings rose by a mere 4.1 per cent in the first seven months of this year. The volume of sales of fabrics and bed wear declined because of the high price of the genetically modified American cotton — a critical input for producing quality goods. The government has so far not been able to persuade the EU to provide an even playing field to the Pakistani exporters. The export of items identified as “other manufactures”, including sports goods, leather manufactures, chemicals, pharmaceuticals and carpets, plummeted by 17.1 per cent as a result of “industry-specific issues”. They are needed to be tackled by joint efforts of the industry and the government. A common complaint is the rising cost of inputs such as a hike in fuel prices, utility charges and interest rates. A high rate of inflation is raising the cost of production and making the exchange rate uncompetitive. Foreign sales of primary commodities have also declined by 9.1 per cent because of lower harvest of rice, cotton and fruits. An impression is gaining ground that exports have reached a saturation point because there are not enough production surpluses for export and the government has not accorded the required priority over the years to the commodity producing sectors, particularly manufacturing. To quote the State Bank of Pakistan, the broad slowing down of exports is puzzling and needs to be investigated in order to evolve concrete measures for reversing the current trend.
The case for a high export-growth cannot be overstated. The government needs to develop special packages for reducing cost of business for products that are unable to stand international competition. The export strategy should also focus on product and quality improvement by upgrading management and workers' skills and opting for the latest international marketing trends, for which the primary responsibility rests with the producers. While boosting exports, an effective policy of import substitution needs to be evolved and implemented in areas of competitive advantage to reduce the trade deficit. The $30 billion imports, the bulk of which are for domestic consumption, offer opportunities for fast-track industrialisation. For example, imports of food products have touched two billion dollars per annum and are rising. They offer a good potential for import substitution.
http://www.dawn.com/2007/04/13/ed.htm#1