“And the meeting concludes with the vote of sympathy for the commerce minister”, were the comments of the then commerce minister who had invited few of us for brainstorming on how to boost Pakistan’s export.
It was long time ago, but the reason, I am quoting that incident here is to emphasise that Commerce Minister, or for that matter, ministry of commerce cannot do much if related economic policies are not very export friendly.
The PPP government could only take Pakistan’s exports from $ 20.2 billion in 2008 to $24.8 billion in 2013. Although it was not a substantial increase, yet on this front, it remained a mission impossible for current government to cross 2013’s export figure. In fact export declined during last four years from $24.8 billion (10.7 percent of GDP) in FY13 to $22.0 billion (7.2 percent of GDP) in FY17.
Let us hear out the exporters, till lately they were complaining of overvalued rupee against major currencies of the world. They held high energy tariffs responsible for high cost of doing business in Pakistan. They are complaining of their rebates and refunds which are stuck with FBR. Despite the fact that private sector credit uptake has improved, they still complain of being crowded out by public sector when it comes to borrowing from commercial banks. They complain of skewed tariffs (import duties and levies) that discourage export competitiveness. They blame law and order, and security situation, difficulties in getting contractual obligations implemented, weak protection of copy rights, and political uncertainty for making it difficult to do business, and the list goes on. Without absolving ministry of commerce from its responsibilities, one can say that partly our exports are not picking up because of export-unfriendly economic policies beyond the control of commerce ministry.
We have not only deprived our consumers of the choices available on the international market, but have also compelled them to pay higher prices for domestically produced products
Exchange rate stabilization is the domain of State Bank of Pakistan. Energy tariffs are set by OGRA and NEPRA. Rebates and refunds are to be reconciled by FBR, and ministry of finance has to make funds available (at the cost of increased fiscal deficit) for clearance of backlog on this count. Commercial banks find public sector lending more secure and lucrative, so private sector would keep on getting crowded out until federal government learns to manage its budgetary deficit from other sources. Tariffs (import duties and levies) are one of the instruments of Ministry of Finance used either to generate tax revenue, or to improve balance of payments through curbing imports. Thus one may argue that enhancing exports competitiveness through tariff rationalization was never the main objective of our tariff setters. Law and order, and security situation has improved a lot during last few years, yet it would take time to get the perception of our trading partners changed who still have to follow travel advisories from their governments which advise them to limit unnecessary travel to Pakistan. Pakistan has a limited export basket and even limited export destinations. Many of our importers have shifted to neighbouring countries because of prevailing political uncertainties in Pakistan. Weak mechanisms of contract implementation, even weaker dispute settlement and arbitration mechanisms, and weak enforcement of copy rights are some of the additional problems hampering our export potential and beyond the control of ministry of commerce.
In rationalization of tariff we have to think beyond generating revenue and think of turning our exports competitive. True that we need to protect our domestic industry. However, in doing so, in many cases such as automobile sector, we have not only deprived our consumers from choice available in international market but also compelled them to pay more price for the domestically produced products which would be available much cheaper in international market. Import substitution regime has turned domestic market so lucrative that our exporters are shying away from turning competitive and competing in international markets. They don’t want to export (without subsidy or government support) and are happy with the hassle free profit they can make in domestic market.
All of the above mentioned issues needs to be resolved if exports have to be improved. However most of these issues are beyond the control of ministry of commerce. A lot needs to be done to align ministries of commerce; planning and development; finance; and (in the context of CPEC) foreign affairs to work as a team. This would not only improve our position in global trade map but also let us benefit from regional connectivity in the era of economic diplomacy.
In the above mentioned context, ministry of commerce’s initiative of preparing National Tariff Policy, and government’s decision of taking ministry of commerce in loop while taking decisions on tariffs and regulatory duty are welcome moves. However, like Prime Minister’s economic package, its timing is slightly wrong. PML-N or no PML-N after the next elections, it would be up to next economic team whether it follows economic policy decisions taken by current economic team. Any deviation from policies that can integrate ministry of commerce with other economic ministries, and trade policy with other economic policies would lead to further trade imbalance.
Last week, I advocated that opposition parties should present their shadow budgets. This week, I would urge the opposition parties to think through how to align country’s overall economic policies with trade policy objectives. If they get a chance to form next government then what recipe they have in mind to promote Pakistan’s trade competitiveness and improving its trade imbalance. If the political parties are not thinking on these lines then we can have an advance ‘vote of sympathy’ both for the next commerce minister and the consumers of Pakistan.
The writer heads sustainable development policy institute. He tweets at @abidsuleri
Published in Daily Times, April 26th 2018.