WEB DESK: Five highest export earning sectors of the economy warned the federal government that they would launch a countrywide protest until and unless the government reinstates the zero-rated regime in the budget 2016-17 namely textiles, carpets, surgical goods, sports items and leather.
Data suggests extremely disturbingly that the Dar-led Finance Ministry is increasingly relying on two sources of foreign exchange earnings to strengthen the foreign exchange reserve position: remittance inflows and borrowing. Remittances, data suggests, have peaked and at best would be sustained and at worst begin to decline in months to come. This assessment is based on the decline in remittances of other South Asian countries, including India and Bangladesh.
Borrowing is costly and the International Monetary Fund mission leader under the 6.64 billion dollar Extended Fund Facility acknowledged in February this year that our foreign exchange reserves are mostly debt enhancing. What is an additional source of concern is the fact that the government borrowed 1.4 billion dollars from foreign commercial banking sector in the current year against the budgeted 200 million dollars; and the acknowledgement by the government during a briefing to the Senate Standing Committee on Finance that it took exemption from Public Procurement Rules Authority (PPRA) to procure commercial loans of 1.86 billion dollars during the Sharif administration.
This last acknowledgement has raised the hackles of independent economists given that any government’s procurement of billions of dollars of short-term loans is a significant boon for the entity from which the loan is procured; and without adhering to PPRA rules charges of lack of transparency, accountability and most importantly nepotism would naturally surface and gather momentum. Economists the world over are agreed that the most beneficial way to generate foreign exchange reserves is through an increase in exports – be they of services or goods.
And here the Sharif administration has performed extremely poorly given the decline in exports in recent months because the cause is not external to the system, as repeatedly claimed by the Dar-led Finance Ministry, but because of flawed economic policy decisions that continue to this day. Chief Co-ordinator of the Five Export Sectors Association Javed Bilwani told a press conference that our exports have declined by 3.7 percent while that of our competitors have increased – Bangladesh’s by 36.12 percent, India’s by 24 percent and Vietnam’s by 67 percent.
This decline, he argued, was due to 3 percent sales tax and a backlog of refunds of 350 billion rupees. The policy to delay refunds to exporters, which generates the liquidity necessary for the production process to continue, has been a major reason for a decline in exports. The government’s overwhelming objective in delaying refunds is to achieve a budget deficit figure as close to the target agreed with the IMF as possible to ensure the release of the next tranche.
However, in its own defence, the government maintains that many of the refund claims are faulty and time is required to verify them. This is partly true; however, it is suggested that large exporters, with a good record in terms of paying due taxes, can surely be extended the refunds on time. And it is to forestall the need to get the refunds, which are not forthcoming in any event that account for the proposal of the five major export industries to seek zero rating.
Secondly, the Finance Ministry’s policy to artificially keep the rupee down, though it has never admitted it, is to reduce the allocations to be made for foreign debt repayment and servicing in the budget. An overvalued rupee, from 5 to 20 percent as per the IMF, acts as a disincentive for foreign buyers to prefer to purchase items from Pakistan rather than a country whose currency is not overvalued.
And thirdly, the law and order situation as well as the energy shortfall, which frequently lead to delays in delivery time, is also impacting negatively on our exports. Bilwani also lamented the Sharif administration’s track record in not implementing incentive packages announced by the Prime Minister. This is unfortunate as it takes away the credibility of the country’s chief executive in meeting his own stated commitments.
Prime Minister Nawaz Sharif needs to be fully on-board with his Finance Minister as to what is doable and what is not given our fiscal constraints and desist from announcing mega projects which are simply not going to be funded due to lack of funds – a fact that would negatively impact on his personal popularity ratings.-Business Recorder