A year of exports shrinkage

ByNabeel Zafar

Works in the private sector


September 11, 2023

Export shrinkage

Nabeel Zafar examines the crucial decline

Export shrinkage – Pakistani exports have been seriously lagging behind imports since many years creating a serious imbalance in financial equation of the country. The pressure exerted by the increasing imports made the financial managers to try to stem the tide through administrative measures and there was witnessed a decrease in imports slightly improving the balance of payment situation. On the other hand, since many years exports of Pakistan have been declining and last year this shrinking phenomenon became extremely acute. There are many factors responsible for the decline in exports but the issue is that nothing was done to rectify this situation and now it appears that matters have been damaged irretrievably. It is incomprehensible that the authorities concerned with exports portfolio in the country have been consistently avoiding to publicly acknowledge the reasons for exports decline though they are frequently engaged in foreign tours trying to prove that they are working hard to improve matters. It must be kept in view that the deficit process could only be halted and subsequently reversed once a balance is achieved between imports and exports.

The current situation is that the merchandise exports fell for the 11th month in a row in July, plunging by 8.6 per cent year-on-year to $2.05 billion. The export proceeds are declining because of internal and external factors stoking up fears about the closure of industrial units, especially textile and clothing. In the current year the merchandise exports dipped by 12.71% to $27.54 billion from $31.78 billionlast year missing the $32 billion target by a wide margin of $4.46 billion. The government has projected an export target of $30 billion for the current fiscal year. Throughout the current year there was a conspicuous absence of any statements or meetings within the commerce ministry to address the causes behind the decline in exports and propose solutions to assist exporters. The commerce minister’s engagements primarily consisted of frequent foreign tours, while failing to make any public statements regarding the diminishing exports.

At the same time, imports also plunged by 26.44 per cent to $3.66 billion in July from $4.98 billion in the corresponding month last year. On a month-on-month basis, the imports declined by 13.15 per cent whereas the imports fell 31 per cent to $55.29 billion in current year from $80.13 billion last year. The exports started posting negative growth in July 2022, barring August when a slight increase was recorded because of the backlog of the preceding month. Export contraction is a worrisome factor that will create problems in balancing the country’s external account.The drop-in textile and clothing, which constitutes over 60 per cent of total exports, was one of the main factors for the decline in overall exports in the current year.

It is reported that textile exports were declining due to the federal government’s lack of strategy and inability to prioritise effectively. The faster refund system was not functioning as intended, with refunds now taking 3-5 months to process instead of the promised 72 hours. Additionally, the sector is facing a substantial increase in financial and energy costs. In the current year it became difficult for exporters to import raw materials and procure other inputs locally. The central bank imposed restrictions on LCs which led to a decline in exports. They further said the root causes of the export decline include working capital shortages and liquidity crunch as refunds such as sales tax, deferred sales tax, income tax, drawbacks of local taxes and levies, technology upgradation fund and duty drawbacks are being delayed. Moreover, it has become difficult for exporters to place orders for the import of raw materials and procure other inputs locally.

On the other hand, imports also plunged by 36.76 per cent to $4.27 billion in May compared to $6.76 billion in the corresponding month last year. Imports fell 29.22 per cent to $51.15 billion during July-May from $72.28 billion over the corresponding period last year. The government has projected an import target of $58.69 billion for next year against $55.29 billion in the current year, an increase of $3.4 billion or 8.14 per cent. The government has now relaxed the import restrictions and announced that the State Bank of Pakistan will not use any measures to slow down or restrict the opening of letters of credit (LCs) from 1 July. This was also one of the conditions before reaching a Staff-Level Agreement (SLA) with the IMF for a nine-month $3 billion Stand-By Arrangement. The government has placed curbs on luxury and non-essential goods since December 2022 and only encouraged imports of raw materials, semi-finished products, pharmaceutical products, food and energy products. As a result, the import bill saw a deep drop in the current year. The impact of these phenomena is that the trade deficit decelerated 43.03 per cent to $27.54 billion in current year from $48.35 billion in the preceding fiscal year. In June, the trade deficit fell year-on-year by 63.32 per cent to $1.81 billion. The Weekender


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