WEB DESK: The Minister for Commerce Khurram Dastgir while addressing the World Islamic Economic Forum in Jakarta recently urged the Islamic world to come up with new ideas and innovation based research to recover from its economic inertia, policy recommendations that his detractors maintain he has neither proposed nor sought to implement in Pakistan.
During a meeting in Islamabad he reportedly lamented his failure to show any positive results during the last three years with exports having declined further by 10.42 percent in July relative to June this year, and blamed it on apathy of senior officials of the Ministry.
Prime Minister Nawaz Sharif reportedly held Dastgir responsible for the decline in exports during a Cabinet meeting held in Murree on 31st July wherein he was told in no uncertain terms that he needs to improve performance if he wants to keep his portfolio. While such an ultimatum may be justified on account of a negative 9 percent decline in exports of goods and services – from 29.969 billion dollars in 2015 to 27.469 billion dollars in 2016 – a decline far outpacing the decline in imports by 3.5 percent – from 50.123 billion dollars in 2015 to 48.343 billion dollars in 2016 – fuelling the trade deficit by 693 million dollars during the two years yet there is overwhelming evidence to suggest that the commerce ministry is largely redundant given that all major relevant decisions are taken in the Ministry of Finance. This is particularly so during years when the Minister of Finance wields greater power than the Commerce Minister which in the current milieu implies 24-hour access to the Prime Minister.
The two questions that need to be answered are why did exports decline and why did imports not decline by a greater percentage given the massive decline in the international price of oil and products during the past two years and a bit which had hitherto formed a major portion of our imports?
The Minister of Finance Ishaq Dar would have us believe that the reason for the decline in exports is external to the government policies and in the budget speech delivered to the National Assembly on 3rd June 2016 he stated that “exports were 20.5 billion dollars during July-April 2012-13. Against this exports for the same period in 2015-16 were recorded at 18.2 billion dollars showing a decline of 11 percent. The main reason for this decline is global commodity prices.” While lower commodity prices and a recession in the West did play a role in reducing our exports yet an observation on Dar’s comment is in order. His constant harping back on the last year of the PPP led coalition government is unfair because (i) it was an election year which prompted the then government to take populist decisions, and for a more informed comparison one would have to wait and see what the Sharif administration decides in next year’s budget as election year approaches; (ii) the PPP was not in power for the entire year and the caretakers are responsible for three months of the year; and (iii) most importantly Dar borrowed about 400 billion rupees on the second last day of that year to wipe out the circular debt – borrowing which partly accounts for all electricity consumers, including life line consumers, paying an extra 43 paisa per unit of electricity consumed as payment of interest. Or in other words, a rise in rates that makes a key input, energy, more expensive for our exporters relative to their international competitors.
The actual reasons for the decline in exports, according to exporters, are three-fold and all relate to the Ministry of Finance decisions: (i) massive refunds payable by the Federal Board of Revenue (FBR), under the administrative control of the Ministry of Finance, is creating severe liquidity problems in exporting units prompting higher borrowing from the banking sector which, in turn, has led to higher costs of production; in addition, higher private sector credit is also being used to pay off past loans acquired at higher interest rates; (ii) an overvalued rupee that may understate the external debt servicing/repayment of principle component of the budget, reportedly Dar’s overwhelming concern, but makes our products uncompetitive thereby negatively impacting on total exports; (iii) utility rates are higher here than those prevalent in countries with which our exporters compete thereby making our input costs higher than theirs; (iv) availability of utilities by export sectors is also not 100 percent; and (v) law and order issues that continue to not only make international buyers of our products hesitate to visit the country but have on occasion impeded our exporters from meeting deadlines.
Dar claimed in his budget speech that imports were recorded at 33 billion dollars during July-April 2012-13 compared to 32.7 billion dollars during July-April 2015-16. Savings in the import bill of oil were nearly 40 percent he added but then claimed these savings were diverted to increasing imports of machinery and industrial raw materials thus enabling more growth oriented activities. In his last recent budget speech Dar said that “the import of machinery over the last three years has increased by a cumulative growth of 40 percent which is again an indication of rising investment in the economy.” Several untruths need to be highlighted in this context. As in the case of exports his focus on 2012-13 with respect to imports and presenting a cumulative percentage rate of machinery imports for the past three years can be viewed as a deliberate attempt to fudge poor performance between 2014-15 and 2015-16 wherein: (i) savings due to a decline in value of imports of petroleum and products amounted to (negative) 37.2 percent as per the Economic Survey with machinery group registering a rise of only 4.8 percent, raw material 8.3 percent with the single largest rise in imports attributed to consumer durables (36.2 percent) with road motor vehicles accounting for a rise of 24.5 percent and electric machine and appliances (not identified for manufacturing purposes) by 51.2 percent; and (ii) in economic theory rise in machinery imports is not an indication of growth in investment though it does reflect the rise in investment in electric machines and appliances from the country of import.
To conclude, the responsibility for a decline in exports and a rise in imports of consumer items rests with the Ministry of Finance and not Commerce. In addition, the failure of the Finance Ministry to release funds to implement the export promotion strategy that required hundreds of man hours cannot be laid at Commerce Ministry’s doorstep. Be that as it may, Dastgir’s critics may well say that he should resign if he has no control over what is happening in his ministry but in our political culture resignation is tantamount to being delegated to the boondocks by the party leader and in this country federal ministers do not resign due to non-performance, corruption allegations or nepotism.
Source: Business Recorder