How to improve the trade balance for Pakistan?
THE Covid-19 crisis was in fact a blessing in disguise for Pakistan’s foreign sector. In 2021, the current account deficit turned into a surplus after a long time.
However, right from the beginning of the financial year 2022, the current account deficit has started to widen again and despite the spectacular increase in exports this year, the current trend indicates that by the end of this financial year, the current account deficit could be an all-time high.
The data from SBP website shows that between July 2021 and January 2022, exports were 27% higher than the same period last year.
However, despite this spectacular increase in exports, the trade deficit remained at an all-time high.
The increase in exports during the period was recorded at 49% which not only offset the increase in exports but also led to a record increase in the current account deficit.
In response to this development, last month the Prime Minister announced a package for export-oriented industries.
There is no doubt that steps taken to boost exports are the need of time but these measures are unable to cover Pakistan’s trade deficit.
In fact, the main cause of the deficit is not exports but the main reason is mounting imports, so we have to find ways to reduce imports.
In the case of the current account deficit, the government has been giving top priority to exports, but the government needs to know that increasing the production capacity for domestic demand is also very important.
Each unit of production for the domestic demand of the country actually reduces demand for imported goods and saves precious foreign exchange.
Currency devaluation or similar measures have never improved foreign trade in the past and will not improve trade in the future.
Despite a good increase in exports in the current financial year, the trade deficit has widened sharply.
For a permanent solution to this deficit, we need to take measures to improve the balance of trade on a long-term basis.
As mentioned above, each unit of goods manufactured to meet domestic needs saves dollars by reducing the demand for imported goods, but the policy makers differentiate between two and don’t have such incentive packages to produce for domestic needs.
If you look at the local market, you will find that there are goods and services that are being produced or can be produced in Pakistan, but still the markets are full of imported materials.
Among the construction industry materials, you will find a lot of things that can be produced in Pakistan and are counted among the good quality products, but it is very difficult to find them in the markets of Rawalpindi and Lahore.
Pakistan is developing a tile brand called Master Tile, which is considered a good quality product, but in 90% of ceramics markets you will not find this tile available for purchase.
In contrast, you will find the market filled with Chinese tiles and ceramics. Many of the electronic products produced in Pakistan, such as refrigerators, fans, televisions, etc.
, meet international standards, and are considered good brands, but the markets are still full of imported goods.
If a locally manufactured television is purchased in Pakistan, it reduces the demand for imported televisions and saves valuable foreign exchange.
Therefore, we need to increase the production capacity for domestic use, so that Pakistani products can improve their quality, be easily available in local markets and people can buy Pakistani products with confidence.
If a person manufactures goods for domestic use, he should be entitled to the same privileges as the manufacturer of export goods.
On the other hand, international brands that want to maintain their presence in the Pakistani market need to be imposed to produce within Pakistan.
Those who are manufacturing goods in Pakistan should have a clear advantage over those who are exporting to Pakistan.
For example, if Huawei and Samsung want to continue their presence in the Pakistani market, they should set up a production unit locally.
Otherwise, the privileges available to such products should be reduced on a monthly basis so that those who are producing locally can have a clear advantage.
Third, we need to change energy technology so that imported fuels can be replaced by locally produced fuels.
Petroleum products currently account for the largest share of Pakistan’s imports, accounting for about 40% of total imports.
Prices of petroleum products have risen sharply in the last 15 months, pushing up the import bill.
To reduce this bill, we need to change fuel technology so that locally produced fuel or energy can be used.
The government has repeatedly stated that the former government has signed energy deals far beyond the country’s current demand, and that the surplus energy could be used to convert the transport system into electricity.
We need to embark on a massive electrification drive for the transport system and we need to provide automotive infrastructure for vehicles in all major cities of the country.
Each megawatt of electricity used to generate automobiles will reduce the demand for imports by millions of dollars.
These are measures that could lead to a lasting improvement in the trade deficit, and the government should pay attention to such measures.
—The writer is Director, Kashmir Institute of Economics, Azad Jammu and Kashmir University
