Revisiting Critical Trade Components: A Crucial Analysis for Success


Published on: December 5, 2023.

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Exports play a crucial role in boosting domestic productivity, generating employment, and earning foreign exchange for a country. In the case of Pakistan, the country’s exports primarily consist of traditional consumer goods such as rice, raw cotton, textiles, carpets, leather, sports goods, and surgical goods. These surplus products are exported to meet the demand in international markets.

Imports, on the other hand, largely consist of fuel, products, cooking oil, and other essential items needed for energy production, household consumption, and industrial development. The nature of Pakistan’s exports and imports makes its economy highly susceptible to global economic conditions. Fluctuations in global supply and demand impact the pricing of exports and imports. In some years, the increase in export revenue is mainly due to higher prices rather than an increase in quantity.

In recent decades, Pakistan’s energy sector has become heavily reliant on imported fuel, particularly furnace oil, which is expensive. This has led to a significant increase in the import bill. Additionally, the manufacturing sector heavily relies on imported raw materials to maintain productivity. Attempts to curb imports can have adverse effects on the domestic economy, leading to lower productivity and higher unemployment rates.

Due to limited foreign exchange reserves, the Pakistani government imposed import restrictions in the previous fiscal year. Concurrently, exchange rates were manipulated to manage the situation. These measures resulted in the suspension and eventual cessation of the Extended Fund Facility program. In its place, a new nine-month-long Stand-By Arrangement program was agreed upon.

Looking at the data on exports and imports, it is evident that Pakistan’s export performance has varied over the years. During the PPP-led government’s tenure from 2008 to 2013, exports experienced a significant increase of 45%, from $21.06 billion to a peak of $30.7 billion in 2013. In contrast, exports declined by 9.15% during the PML-N government’s tenure from 2013 to 2017, with exports decreasing from $30.7 billion to $27.89 billion.

One of the contributing factors to this decline was the policy of artificially controlling the rupee-dollar exchange rate implemented by the government during that period. This policy, funded by extensive external borrowing, had devastating consequences for the economy. However, a change in policy led to an increase in exports by June 2018, reaching $30.56 billion.

During the PTI government’s years, exports continued to rise, reaching $39.42 billion by 2022, despite a dip in 2020 due to the COVID-19 pandemic. However, a subsequent change in policy resulted in a decline in exports by 11% to $35 billion in the last fiscal year.

The percentage of exports to GDP has been gradually declining since 2008, reaching a low of 8.22% in 2017. The PTI government managed to increase exports as a percentage of GDP to above 9% and eventually reached 10.47% by 2022.

As for imports, their rise can be attributed to multiple factors, including international prices, rupee depreciation, and specific contracts signed under the China Pakistan Economic Corridor (CPEC). The energy contracts in particular, which involved capacity payments in dollars and relied on expensive furnace oil, significantly increased the import bill. Additionally, the decline in foreign exchange reserves prompted the government to impose import restrictions, negatively impacting the manufacturing sector and resulting in a negative GDP growth of 0.3% in 2022-23.

One concerning aspect is the lack of correlation between domestic output and exports. Despite an increase in domestic production, exports plummeted during the previous government’s tenure. This indicates the need for a shift towards export-led growth and the establishment of a productive base solely dedicated to exports. Reducing imports would require reducing reliance on imported raw materials in the manufacturing sector and reforming the power sector. However, renegotiating agreements made during the previous government’s tenure poses a challenge.

In conclusion, Pakistan needs to prioritize export-led growth and focus on developing a productive base dedicated to exports. Addressing the reliance on imported raw materials and reforming the power sector will be key to reducing imports. However, this requires careful negotiation and planning, considering the existing agreements and the challenges involved.