Pakistan’s top commerce official is pushing the government to bet big on the export industry by maintaining tens of millions of dollars of policy support even as the South Asian nation looks to tighten its fiscal belt in a mid-year budget this month.
The country’s all-important textile industry is at the centre of this export-led growth strategy, said Abdul Razak Dawood, advisor to Pakistan’s prime minister, as the government targets ambitious growth of 4.8% in the 2021-2022 financial year.
Authorities have supported the export industry since coming to power in 2018 by securing competitive energy prices and offering cheap credit. Dawood told Reuters he had spoken to the prime minister and finance minister about the need for continued support.
The government is looking to end tax exemptions in a number of areas in its mid-year budget as part of fiscal tightening efforts aimed at securing the release of $1 billion in IMF funds. Pakistan entered a $6 billion support programme with the International Monetary Fund in 2019.
“People in this country don’t understand what the importance of exports … export-led growth strategy (is),” Dawood said in an interview with Reuters on Friday.
He said continuing support for exports is the best way to tackle Pakistan’s long-standing economic woes and achieve sustained growth.
Pakistan’s exports hit a historic high of $25.3 billion in the 2020-2021 financial year, with textiles making up a whopping 60% of those exports. That helped the country achieve 3.94% GDP growth last year after a coronavirus-induced slump.
Pakistan’s exports have risen 24.7% year-on-year in the first half of the 2021-2022 financial year, official data showed last week.
“You can see that there’s been a remarkable jump,” Dawood said.
One driver has been the government’s policy of securing regionally competitive power rates to allow Pakistani exporters to match prices offered by peers such as India, Bangladesh and Vietnam, he said.
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The central bank has also offered cheap credit to the industry after the coronavirus-induced economic slowdown.
To sustain this, Dawood is encouraging the government to push through with a textile export policy which has faced push-back from various government departments.
The policy could include billions of rupees in regionally competitive energy rate assurances, concessional funds, drawbacks and tax rebates, experts and local media reports say.
While Dawood said months of negotiation between the commerce and other ministries have delayed the policy’s release, it could be enacted as early as this month with certain “conditionalities”.
Growing exports have been accompanied by a surging import bill, which Dawood said has been driven by rising global fuel and food prices and purchases of COVID-19 vaccines.
Imports grew 65% year-on-year to reach over $40 billion in the first half of this financial year, putting a strain on the country’s $24 billion foreign exchange reserves.
The spike has not unnerved Dawood, who said it also reflected “good imports” of capital goods and raw materials — a sign that the country’s industries are growing.
Some economic experts have criticised Pakistan’s over-reliance and continuous support for the textile industry.
Dawood said he did not agree that the textile sector was “too pampered” but acknowledged the need to diversify Pakistan’s exports: “In the long run, we should not just depend on just textiles … if something were to happen to textiles, where would the country go?”
Other experts do not agree with Dawood’s policy of sustained support.
“The government needs to evaluate subsidies given to export related sectors in light of the fiscal challenges as well as misuse of those subsidies,” said Mohammed Sohail, CEO of brokerage Topline Securities. “In the past we have seen that such support has not yielded desired results.”
Reuters with additional input by GVS News Desk