The biggest challenge is increasing exports from USD 32 billion to USD 100 billion says Ahsan Iqbal
The Pakistan Institute of Development Economies (PIDE) discussed in detail how to improve exports in Pakistan. The Honorable Federal Minister for Planning, Development, and Special Initiatives, Prof. Ahsan Iqbal, said we need to emphasize our tax-to-GDP ratio, which was around 16-18% previously but now reduces to 9% only. We need more investment, both local and foreign. It will make us less dependent on the IMF. The biggest challenge is how to increase exports from USD 32 billion to USD 100 billion. For this, we need to find new products and markets.
He also said to analyze how foreign aid is linked with growth previously. During the era of 1980s, Pakistan got many projects and easy money. In the 1990s, we faced sanctions, and the IMF asked us for commercial borrowing, which escalated our debt servicing. In 2018, we had debt servicing of around 1500 billion, which increased to around 4500 billion recently. It leaves us no space for a development budget.
Earlier, Vice Chancellor PIDE Dr. Nadeem ul Haque emphasized that the regulatory system is the biggest problem in Pakistan, such as unnecessary documentation, taxation, and NOC. Around 122 regulatory agencies collect taxes and do not contribute to productivity. Corporate governance is not very encouraging, and just 31 families in Pakistan are involved in import substitution, and our industrial policies just protect them. The stock market in Pakistan is not financing exporting industries but import substitution.
Mr. Omer Siddique and other researchers from PIDE focused on the historical trend of exports and economic growth in Pakistan. The reasons for the trade deficit are low export competitiveness and a few product lines. Both productivity and investment are declining over time. We previously used development money for consumption, resulting in the lowest productivity in the region compared to Bangladesh, China, India, and Sir Lanka. Although we have volatile productivity in Pakistan, recently, data shows that Pakistan’s performance is not very impressive. Data on exports show that we export mainly primary goods, which disconnects us from the global supply chain. Overall, Pakistan exports textile-related products, and we just target a few product lines exports.
We have a low score on the economic complexity index. Knives are considered complex products showing the poor technological structure, whereas chemicals and machinery are considered complex products in China. Low geographical coverage does not allow us to expand our exports; around 65% of our total exports are directed to 10 countries. However, stagnant exports and a few product lines do now allow us to increase our export base.
The PIDE’s Pro Vice-Chancellor, Dr. Durre Nayab, RASTA Director, Dr. Faheem Jehangir, Dr. Muhammad Zeeshan, Mr. Muhammad Armghan, and many other economists and researchers were also present at the meeting.
The participant of the meeting further added that the lack of competitiveness is another factor, which is coupled with the high cost of commercial energy. Pakistan has the highest commercial energy compared to India and Bangladesh. Another factor is poor logistic performance. Pakistan relies mainly on road transport, and we need to promote railways for freight trade. Poor regulatory structure is another factor; data shows that Pakistan has a low score on the regulatory quality index. In addition, a high regulatory burden due to tax regulations does not allow new products into the market.
They said total factor productivity is low in Pakistan but relatively higher in cotton ginning and internet service providers, indicating more potential for these industries. There is a negative TFP in the textile sector. The ratio of exporting firms is declining in Pakistan due to unstable policy measures.
It was also observed that the Import substitution policy is not effective in Pakistan, and we are highly dependent on imported inputs. Cascading policy in Pakistan causes export policy bias, and producers just produce for the domestic market instead of export destinations. Policy volatility and uncertainty add to our miseries.
According to the global innovation index, we are second to the bottom. Research and development in Pakistan are not encouraging. Innovation is less protected in Pakistan, and many companies moved to Vietnam and other countries for research and development. There is no link between academia and industry in Pakistan. As a result, large conglomerates invest in the sector where they are protected, such as real estate. Only around 32% of total listed industries export, and most of the industries have a very small scale of exports.
“The cost of tax compliance is high in Pakistan. A fragmented tax system disrupts growth in Pakistan. Reducing withholding taxes lines can reduce compliance costs and reduces tax evasion. High corporate income tax causes policy uncertainty in Pakistan. Sales tax on import works as a tariff. We need to link the concession in customs taxes with export performance. PIDE is developing a tax commission, which will be helpful in analyzing the overall taxation policy in Pakistan. Finally, there is a high cost of sludge in Pakistan, mainly in the health, construction, and education sectors. The total cost of sludge is around 39% of GDP. Further, the government footprint is around 67% of the total economy in the form of public enterprise and development expenditures,” they emphasized.
Editor: Raja kamran