As Covid-19 lockdowns are being lifted globally, we are witnessing a recovery in exports and other key economic indicators. In July 2020, the monthly exports ($1.89 billion) still stood below the in July of the previous year ($2.22billion), however a 20 percent growth was witnessed compared to the previous month – June 2020 value of $1.58 billion. An encouraging feature of this recovery is that the value-added segment of exports is witnessing an increase. This is at least true for the textile and garments sector.
As large-scale manufacturing opens up again, we are noticing an increase in import of inputs and intermediate goods – a healthy sign for the industrial sector. The imports of goods in July 2020 saw an increase of 2 percent compared to the previous month, however it still remained lower (by 13 percent) compared to the same month the previous year i.e. July 2019.
While it is being said that the falling value of Pakistani rupee has helped the exporters, some reforms introduced by the PTI government deserve credit. Among these perhaps the most important ones include expediting past refunds for exporters. This helped improve the working capital availability; increasing export financing under schemes offered by the central bank; and allowing energy and other utilities at a lower rate during the pandemic times. Heightened trade diplomacy was also seen playing a role with major export destinations like the European Union allowing electronic documentation, and seasonal exports such as mangoes being rescued.
Going forward, however, the institutions involved in supporting export competitiveness need to learn from what other countries have been doing to help their trade sector. In this regard, these institutions will need to rethink and expedite reforms in areas which include improving availability of affordable finance for existing and potential exporters; expediting taxation measures which could help competitiveness; implementing pandemic-related protocols now required in trade handling, particularly in the case of food and agriculture exports; using e-commerce tools and promoting credible electronic payment mechanisms; and finally an improved grievance redress mechanism.
Recent evaluations of SBP’s export financing schemes show that while these may have encouraged traditional exporters, these schemes have not led to export diversification. There is a need to design these schemes with a view to encourage exporters to find markets in new countries. The central bank is currently incurring high internal costs for offering subsidized export credit. These costs can be lowered by reconsidering the refinance rates which SBP offers to the commercial banks.
No export scheme should be sector-specific. All initiatives should include all sectors of the economy, particularly potential and new exporters. Export finance also remains an under-researched area so that we do not have clear evidence of how this may have impacted growth and productivity in various exporting industries. In this regard academia and policy think tanks can play a role to bridge any data and information gaps that prevent improvements in these finance schemes.
The findings from the programme ‘Strengthening the Use of Evidence for Development Impact (SEDI)’ indicate that there is a need for the central bank field offices to engage in regular dialogue with exporters in their area and to report back the findings to the headquarters in Karachi so that policies are responsive to all segments of exporters. The SBP needs to expedite its support for financing trade in services. The IT sector is one example of bearing the brunt of laxness on part of various policy and regulatory institutions. To support potential small-scale IT sector exporters and free lancers export financing schemes need to be re-engineered. Attracting the much needed foreign direct investment in Pakistan’s IT industry has also been difficult due to lack of trade facilitation for this sector.
All data relevant to refunds to exporting firms should be made public and available online. This will allow all to see over the web portal as to who has filed for a refund and when? How much processing time is being taken? This should indicate to the wider public if delays are taking place in processing of claims in turn leading to liquidity crunch faced by exporters.
Covid-19 has imposed additional costs on business and trade. The federal and provincial governments now need deeper engagement with the private sector to understand these costs.
Recent consultations under Pakistan Regional Economic Integration Activity (PREIA) programme call for a careful evaluation as to why exporters are not satisfied with the export promotion schemes of the FBR including, Manufacturing Bonds Scheme, Export Oriented Schemes (EOS), Duty and Tax Remission for Exports (DTRE) Scheme, Temporary Importation Scheme (TIS), and Export Processing Zones (EPSs). Why is it difficult despite automation for small and mid-sized exporters to access these schemes? The FBR can boost outreach to help raise awareness across the private sector about how to take advantage of schemes introduced for easier import of inputs.
The pre-conditions to be eligible for such schemes have also been termed harsh and seen preventing small exporters from accessing these facilities. The private sector may be able to better utilize these schemes if time required to process applications at the FBR is reduced, and formal and informal costs involved in application and delays in receiving refunds are rationalized.
Modern and efficient tax systems require improved data and analytical capabilities. The FBR needs to strengthen internal research capabilities. In the past it has been regularly publishing its own research-based journal and updating the databank on various taxes and putting the information online. This practice should be resumed. Frequent changes in FBR’s leadership have hampered the process of engagement with the private sector. This unanticipated turnover is also a hindrance in sustainability of already initiated tax reform by PTI.
The results from ongoing research under Growth for Rural Advancement and Sustainable Progress (GRASP) programme indicate that the agriculture and livestock output has been hit hard due to supply chain disruptions, locusts attack, and rains which coincided with Covid-19. After the resurgence of Covid-19 in New Zealand attributed to imported food consignments, there is a global emphasis on safe and hygienic handling of food and agriculture trade. The new health-related measures in trade and logistics are bound to increase costs for exporters in this sector. The government bodies involved in agriculture trade facilitation now need to look into international evidence and how innovations around improved data and information systems; reduction in information, marketing and distribution costs are desired to help exporters.
After a lot of trade diplomacy, Pakistani mangoes were able to find markets abroad during the outgoing season. However despite a substantial fall in the value of Pakistani rupee, agro-based exports have not increased by much. The low capacity to export is worrying. For example, in the citrus sector, despite receiving orders from abroad, there is usually little left to export after fulfilling the local demand. In most countries citrus items struggle to meet the desired product specification and trade-related safety and hygiene requirements.
Other factors which could keep the exports subdued include: rising input costs faced by the farmers; indirect taxes on inputs and farm operations; subsidies and support price gains not reaching the small farm exporter; missing innovation in seed varieties; lack of technology preventing modernization of harvesting processes, cultivation, storage and marketing; weak access to agriculture financing and water shortages.
Covid-19 has imposed additional costs on trade. The federal and provincial governments need deeper engagement with the private sector to understand these costs. The author remains concerned about low number of small and new firms graduating and becoming exporters. In this regard, a long term programme is neededto invest in boosting firm capabilities with a view to help them comply with quality control measures, pre-shipment and border clearance requirements, environment-related measures, labour conventions and other conditions by buyers of Pakistani goods.
Promoting a sustained public-private dialogue could help the government understand what exporting firms need to cope with the Covid crisis. Such a dialogue will also result in an understanding of what these stakeholders need from the future fiscal, trade and SME policies.
This article was originally published at: https://www.thenews.com.pk/tns/detail/707538-export-competitiveness-under-pti
The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.