21 September 2009
The low volumes of foreign trade come on the back of domestic economic slowdown continuing, and the global recession that has not withered away.
Both imports and exports are down at the same time, so for.
Foreign trade in the first two months — July-August — of the current fiscal was $8.107 billion — is down 22 per cent from $10.437 billion in the same months of 2009. These numbers were unveiled this week by Federal Bureau of Statistics, or FBS. As a result, the trade deficit narrowed down, too.
Imports were $5.139 billion — down 26.56 per cent from a level of $6.998 billion in the like period of 2009. The two-month exports totalled $2.968 billion — down 13.69 per cent from $3.439 in the like period of fiscal 2009.
The trade deficit narrowed down 38.45 per cent to $2.171 billion — compared to $3.564 billion in the lie period of 2009.
Pakistan’s trade deficit in whole of fiscal 2009 was $17.04 billion, compared to $20.91 billion in 2008, as international oil, commodity prices and industrial input prices eased.
Although, it is still two early, but it is yet to be seen whether the government’s Foreign Trade Policy for 2010-13, and the Textile Policy for the next five years will impact the business, if at all. The two upbeat policies have been prepared in the backdrop of the continuing, although slowing down, international financial crisis and the recession. Besides domestic causes, the global situation has impacted Pakistani exports, as well as imports. This is because the industry was not building up inventories of imported inputs, nor were they importing capital goods and machinery, in view of poor business prospects. Added problems were created by the continuing high interest rates, prolonged power outages, poor law and order situation, and reduced domestic demand due to high prices of food and consumer goods.
The government’s Trade Policy projects exports to reach a level of $18.8 billion in FY-2010.
That indicates a growth of 6.0 per cent. Islamabad had fallen short of its export target in 2009 by a hefty $5.0 billion, as exportable surpluses were down, and its traditional markets stayed very subdued, for all of its export items. But, textile and ready-to-wear garments were particularly hit.
Like a projected growth in exports this year, the government’s five-year Textile Policy 2010-2014, unveiled August 12, textile exports are targeting to rise to $25 billion over the next five yeaRsIt looks high, in view of the fact that the current annual exports are only around $9 billion.
The $25 billion target, and its attainability, is being currently debated by the industry, business and analysts.
The policy aims at improving the performance of the textile industry which is the largest industry and the forex earner that brings in more than 60 per cent of overall foreign exchange. The policy is targeted to improve productivity of the industry, improve value-addition, undertake necessary structural adjustments, up-grade and modernise its equipment, and focus on ready-to-wear and fashion apparel. The government has provided a number of monetary and fiscal incentives to the industry to help it perform better. But still, in order to attain such a high level, all stakeholders will have to strive hard.
However, now, the outlook for foreign trade to expand appear good, because Pakistan will have to import a range of commodities, which constitute traditional items, as well as those like sugar that will be required to meet the shortfall in the domestic output. Islamabad has announced, it will import 1 million tonnes of raw sugar tol be processed into white sugar during its new season that starts in October. It will help to meet a projected domestic shortfall of 1.5 million tonnes during the year to September, 2010. Islamabad will also import 0.4 million tonnes of urea fertiliser for the spring crops.
The three year Trade Policy 2010-12 has an export target of $18.84 billion for the current fiscal 2010. The target is 5.96 per cent higher than the actual exports of $17.78 billion in 2009. But business and industry sources say the country will have to strive very hard to achieve the new target in view of the currently poor domestic and global demand.
However, there are signs of some sectors improving their output. The auto industry, for instance, after a bad 2009 year, has just reported increased output and sales. Pakistan Automotive Manufacturing Association, or PAMA, reported, its sales in August, rose to 8,441 units, which are 11 per cent higher on a month-to-month basis, compared to 7,614 units in July. The sales improved 31 per cent on a year-on-year basis, PAMA said, and have been improving for the last six months. This happened on the back of higher taxes on imported autos which turned customers to domestically-assembled autos and comparative economic stability.
The sales, in the past were adversely were also impacted because of high interest rates and rising cost of auto leasing on bank loans. The sale of low-end cars, especially 850 cc cars, was up 38 per cent, while those of 1300 cc and higher capacity dropped 1.0 per cent.
However, renewed inflationary pressure may adversely effect the domestic industrial output, as well as exports. FBS reports, “ the benchmark Consumer Price Index will increase further on the back of rising imported oil and food prices from the present 10.93 per cent so for this year. But, Zahid Hussian, Chairman, Korangi Association of Trade and Industry says, looking at the recent FBS data “the CPI must be already touching 14 per cent instead of 10.93 per cent.” Commenting on the recent lowering of the benchmark Discount Rate by the State bank of Pakistan, the Central Bank, from 14 to 13 per cent, Hussain said, “the industry will not show any significant improvement, unless the Central Bank brings the rate of interest to a single digit,” in order to lower the cost of production and reduce prices of industrial goods.” At present level of the Karachi Inter Bank Offered Rate, or KIBOR, the industry still gets bank financing at 15 per cent” he said. The current six-month KIBOR is 12.43/12.68 per cent.
Pakistan needs to work on several fronts to pull the economy out of its present stagnation. Prime Minister Yousuf Raza Gilani is conscious of these problems. Gilani, addressing the country’s big business community at the Lahore Chamber of Commerce and Industry, listed several problems. But he especially singled out shortages of power, natural gas, and water, to tackle which, he said, “several measures are being taken.” He said, “the government is trying to resolve the problem of power shortage on a priority basis, and has decided to use coal at Thar coal fields for power generation,” besides completing several other projects.
Gilani said, “the shortage of natural gas is the second major problem, faced by the country. The government is considering promoting the use of alternative fuels for this purpose. Water is the third major problem which cannot be resolved overnight like gas and power. The government will build a number of dams to tackle this problem.”
The Prime Minister has assured the businessmen that government will help them to promote exports. “The government has announced a 3-year foreign trade policy for economic growth and has allocated Rs32.22 billion for export development by opening retail outlets of various products abroad,” he said.
