WEB DESK: The Federal Minister for Commerce Khurram Dastgir unveiled the three-year Strategic Trade Policy Framework 2015-18 with the overarching objective of achieving $35 billion exports by 2018, the election year, which at first glance appears to be more realistic than previous trade policies given that the current level of exports is around 24 billion dollars.
The budgeted amount for the achievement of this ambitious trade policy in the current year was 6 billion rupees; however, sources in the Commerce Ministry informed Business Recorder that with only three months remaining in the current year they would propose to the Finance Minister to defer this amount to next fiscal year.
There is little doubt that the Finance Minister would readily accede to this request as it would reduce the pressure on him by that amount in terms of meeting the deficit target agreed with the International Monetary Fund team under the 6.64 billion dollar Extended Fund Facility. Be that as it may, without the necessary funding and with tax concessions announced in the trade policy unlikely to be implemented till next year’s budget, again because of Ishaq Dar’s focus on meeting the deficit agreed with the Fund team, the trade policy is in effect a two-year policy – 2016-2018. And this raises the question of whether the 11 billion dollar increase in exports that the policy envisages is indeed realistic as it is a two-year period and not three.
The policy consists of four pillars, in marked contrast to previous policies that either focused on import substitution or export promotion: product diversification and sophistication which one would hope envisages producing exportable products rather than exporting what we produce, market access, institution development (though no mention was made during Dastgir’s press conference as to which institutions would be developed and how) and trade facilitation.
Dastgir asserted that the main reason for Pakistan’s poor performance in exports is a competitiveness crisis which he defined as heavy reliance on only two products. He further averred that cotton output fluctuates which is in the nature of the crop; however, what he ignored was the fact that the fluctuation in farm output, including cotton, is also attributable to government policies particularly the lack of support extended to the agriculture sector by the federal government. This is unlike our regional competitors who extend massive subsidies on fertiliser and other inputs, including high quality seed as well as on the maintenance and expansion of the irrigation system.
The trade policy envisages providing support to the agri-business sector with a 50 percent support on the cost of imported new plant and machinery for specified undeveloped regions or 100 percent mark-up support on the cost of imported new plant and machinery throughout Pakistan. This concession raises two questions: would the envisioned support be extended by the commercial banking sector and if so this scheme may well go the way of the Prime Minister’s youth scheme as the private banking sector’s requirements for a loan can only be met by those with guarantees/assets? And if the government is to bear the cost then one would have to wait and see if this is budgeted for the next fiscal year. With the IMF programme still ongoing, it is unlikely that the Dar-led Finance Ministry would be able to extend any subsidy in 2016-17.
A short-term strategy, the Commerce Minister noted, would target three markets (Iran, China and Afghanistan) and focus on four products (horticulture, meat and products, jewellery, basmati rice). It is unclear how Dastgir defines short-term as many economists would define it as at least 2 years with respect to raising exports by 11 billion dollars which is the duration of the entire policy. Two of the three target identified markets raise a lot of questions given that our official trade with Iran has never been high while our trade with Afghanistan remains hostage to the ongoing conflict in relation to dealing with the Taliban.
China, as the minister stated in his press conference, is suffering from an economic downturn which incidentally is not expected to reverse in the next year or so. With respect to the four products it is necessary to point out that the three countries are unlikely to be buying jewellery given the state of their economies. Meat and products or horticulture exports would perhaps have been more successful were the focus Middle Eastern countries. Basmati rice would be a product that is saleable in the three countries however India exports basmati rice and takes the lead in sales to Iran and Afghanistan.
Dastgir maintained that leather, pharmaceuticals, fisheries and surgical instruments have higher export potential. Indeed, but the fact remains that these items are already being exported and if cotton and products are taken out of the equation these items are high on the list of generating export revenue. One would have hoped that the focus would have been on leather manufacturers including footwear, engineering goods and sports goods.
The new policy aims to boost pharma exports. But so far none of the 600 pharma companies has the World Health Organisation (WHO) approval let alone certification by FDA of the US or European Drug Regulatory Agency’s certification. Perhaps, TDAP could help out in paying the dollar 20,000 fee and facilitate the visit of WHO inspectors to local pharma companies. WHO certification would allow export of Pakistani drugs in case of emergency to WHO-registered countries. To conclude, the delay in approval of the trade policy, attributed to the Prime Minister, shortened its duration to two years; and while one would have expected the Commerce Minister to present a two instead of a three-year policy or failing that to extend it to 2019 yet for the Sharif administration the buck stops in 2018 – the election year.
One must not lose sight of the fact that Finance Ministry holds the key to successful exports. It has consistently denied refund/rebates to exporters – which are due as far back as 2002. We need to ‘walk the talk’ or else it will remain ‘talk the talk’. Export diversification (in terms of products and regions) and greater market access have been aims of trade policy for over two decades with little or no progress. We are afraid that mere rhetoric will not suffice. Incremental refunds have never worked. Let us not create another circular debt in the export sector as we have done in the energy sector. Refund of taxes to exporters is long overdue. But our fiscal woes continue to worsen. We need to urgently issue bonds as planned and seek permission from the International Monetary Fund (IMF) in this regard.
Source: Business Recorder