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Motif Pakistan’s Balance of Payments Prospects and Policy Proposals Investment (BOI) needs to gear up its efforts to attract direct foreign investment in export related industries and in the energy sectors. • It seems that competitive pressures for Pakistan’s textile and clothing exports (64% of exports) arising from the phasing out of the Multifibre Arrangement (MFA) were not anticipated fully and new investments on the scale required to move up the value chain have not been forthcoming. The textile industry, thus, needs to adjust to the realities of the world market and restore its competitiveness through enhancing productivity. The structural problems characterizing Pakistan’s textile and clothing sector cannot be solved without major investments in both plant and equipment and human skills, investments in there areas are not taking place at the required scale. • The government has already met the textile industry at least half way largely through credit subsidies. The textile industry needs to adjust to the realities of the world market and must restore its competitiveness mainly through enhancing productivity. Conceptually, any subsidy in support of textile exports where international prices are falling is not a good option. The fact that Pakistani textile exports are dominated by cloth and yarn while etc in the world clothing imports that are expanding faster is a handicap which cannot be easily addressed by further cash subsidies. • Pakistan’s export sector, in general, is faced with structural constraints e.g. extremely narrow export base, low unit value exportables, lack of competitiveness, lax quality control etc. Hence, any future export growth strategy will have to be premised on structural solutions. • Any cosmetic measures to boost exports might yield some marginal increases but would in no way address the root causes of the problems afflicting the export sector. 230 PAKISTAN BUSINESS REVIEW JULY 2010
Pakistan’s Balance of Payments Prospects and Policy Proposals Motif • The government needs to carefully examine the adequacy of the existing incentive regime for Pakistan’s exports. • The government also needs to review the overall production structure of the country to determine whether the existing tariff regime encourages production for domestic consumption or for exports. • There is also a dire need to re-orientate our exports strategy from the goods sector to services exports. Services are a fast growing sector of the Pakistan economy and their export potential needs to be tapped through seeking enhanced market access. • The government should also assess the efficacy of subsidies as a tool of export promotion and in this regard an analysis ought to be made of the impact of R&D support being provided to textile garments. The evidence so far leads to the conclusion that financial support has not helped expand value of textile exports. • For the long run an ambitious program of increasing Pakistan’s market share in world trade which at present is a paltry 0.15% is needed, but this cannot be achieved without massive efforts to diversify exports and make export development a central plank of our policy. Despite the fact that Pakistan has liberalized its trade substantially since the late 1980s (trade – GDP ratio changed to 0.5 during liberalized period from 0.1 during the pre-liberalized period) it shows a much lower response to trade liberalization in terms of exports growth compared to its competitors and regional counterparts (India; 0.4%; China 1.3%; Bangladesh 0.6%; Sri Lanka 0.3%; Malaysia 2.7%; Turkey 0.8% and Iran 0.1%). • Policy attention needs to be focused on non-textile manufactured exports, the new promising areas of IT PAKISTAN BUSINESS REVIEW JULY 2010 231
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