Pakistan’s trade deficit has never been larger. Posting a growth of nearly 138%, period on period, this gap is now looking un-sustainable, especially in wake of country’s dwindling exports. The main component of our exports, Textiles, has been declining at a double-digit rate for most part of the year and other than services almost all sectors – rent seeking aside – appear to be uncompetitive when compared on respective global prevailing-price scale. Given domestic factors – growing energy needs coupled with crippling energy prices (in comparison to our regional & international competition) – and external realities – firming global oil and commodity prices – Pakistan’s import bill, if unchecked, is likely to climb even higher. Despite all notions from Islamabad that the government has enough reserves in the kitty to meet the deficit obligations, the reality is that the trend of trade and trade deficits do matter. As Islamabad’s 2017-18 budget indicated such increased trade deficits almost always affect home industry and ultimately add to more hardships for ordinary Pakistanis; especially for those who subsist below the poverty line. Unless the soon approaching election mode (next year) deliberately drives the decision makers to continued economic-policy imprudence, the choices with such a high trade deficit are very limited with all roads leading to measures that will cut any existing food, fuel and power subsidies and add to more impulsive cum coercive taxation drives. If imports are indeed curtailed then as government’s revenues from imports dwindle it will look other avenues to tax, in-turn adding to the existing competitiveness issues in home manufacturing.

So what can be done about Pakistan’s trade deficit? No surprises: the answer is two tiered: short term and long term. While vision, strategy and a long-term perspective in trade are absolutely essential one cannot afford to take one’s eye off the current issues. The problems with our exports are now and therefore also need to be fixed ‘now - merely devising distant fixes to current issues will just not help, because international markets once lost are extremely difficult and at times impossible to gain back. Meaning, we shouldn’t be going down trying to put Murphy’s law to test: Tomorrow, if there are no export markets there will be no problems left to solve! Today’s reality is that Pakistan’s exports are rapidly declining and this fact is not just limited to its textile exports, which form nearly two thirds of total exports, but also applies to the non-textile exports, which have registered a year-on-year decline of more than 6%.

This development becomes further worrisome when one dissects the declining trend especially in the main sector: textiles. A deep dive analysis tells us that when we compare the period July-December 2016, with the same period in 2015, it is our value added textile sector that is losing heavily while the basic commodity exports (of raw cotton) have on the contrary gained marginal ground – not a very desirable outcome by any stretch of imagination. What it essentially means is that Pakistan’s manufacturing is fast losing its competitiveness, factories are closing down and a large number of jobs are being lost – Textiles by nature and especially exports are known for being labor intensive. For anyone to believe that this decrease in any way represents a regional or global trend will be living in a fool’s paradise: During the above-mentioned period in review, Bangladesh, Vietnam and Myanmar actually registered significant increases in their respective textile made-ups exports and also textile made-ups per se - in the context of overall global textile trade - increased by nearly 2.40% during the same period. Further, over the last 7 years both India and Bangladesh grew their textile exports by 107 percent, whereas, Pakistan only a meager 7 percent. Needless to say the problem is at home and not somewhere else. With pressure on foreign exchange outflows likely to increase in the coming months – external debt repayments, firming up oil prices, rising imports and fast increasing corporate profit/dividend repatriation, the first thing that the government needs to do is to ensure that the textile package announced by it earlier in the year should get implemented without any further delay as its initial phase’s tenure in effect expired on June 30 2017 – refunds from the period are still pending. In fact it now needs to revisit solutions by engaging the stakeholders afresh to carve out moves based on real time issues, as they stand today. The government has to realize that the main issue that confronts our manufacturing is that of competitiveness (a difference of anywhere between 10% to 15% with regional competitors) and there are only three quick-fix solutions: a) devalue currency by as much or b) to see to it that the support-package practically covers this differential or c) a mix of a & b. The writer recommends the following: around 5% gradual currency devaluation (by December 2017 - $ at112); extending the applicability of announced rebates to June 30, 2018, and thereafter linking them to a firm’s retention of dollar-based export sales instead of linking to10% growth in sales (a dollar denomination will in any case mean a minimum 5% incremental increase in rupee exports); all rebates to be directly payable upon receipt of payment by the central bank into exporters’ accounts; and in addition to immediately abolish all line-loss surcharges being unfairly charged to the industry in its power bills.

As for the long term measures, a shift in the overall export strategy will be required in the following elements: a) Product diversification; b) Destination diversification; c) Skills development and education, which are primarily government’s responsibilities. Improving the quality, value, and competitiveness of Pakistani exports will require major investments in skill training and education. Significantly, Asia’s new export behemoths, China, India and Bangladesh, have equipped their populations (in both genders) with the skills and schooling that produce modern, high-valued-added exports; and last but not least) managing CPEC (China Pakistan Economic Corridor) prudently – Chinese investments for example in Vietnam have helped build its exports but have played an exact opposite role in other countries!) emphasize on increasing ease of doing business and effectively reducing cost of doing business in Pakistan. Arguably, planning for such endeavors will not be easy, as these involve some tough decision making at a time when the world is witnessing a renewed wave of protectionism. The good news though is that the future of global trade remains bright. While duly recognizing the fears of growing protectionism in developed economies, in their latest reports most global financial institutions, including the IMF and more importantly the WTO, remain confident that this phenomenon of growing protectionism will pass soon. They expect the global economy to grow by 3.4 percent and the world trade to grow by as much as 3.1 percent in 2017, far better than in 2016. The concern though is that since some long-term structural and fundamental problems to free and fair global trade still remain unresolved, the coming years are going to present some fresh and daunting challenges for smaller developing countries (such as Pakistan) striving to expand their global market share while preserving their home manufacturing and protecting their domestic markets from being flooded with dumped goods from large industrial economies. During this period we here in Pakistan will not only need to be fearful of such dangers, but also our overall trade strategy will require some quick thinking and deft handling!