There is a fear among economic analysts. There definitely is a sense of urgency among policymakers. And, there is a feeling of deja vu among people who are reminded of the balance of payments crisis of 2018.
In the first five months of fiscal year 2021-22, the trade deficit has already galloped to $20.6 billion, while it took more than eight months to reach that number in fiscal year 2018. Clearly, we’re at the brink of another boom and bust cycle. Decisive action is needed.
Pakistan’s chronic economic problem has not been low remittances rather it has been the dismal export of goods. Had there not been remittances growth, which requires lesser efforts than export growth, the country’s economic wellbeing would have been significantly worse than the low base it is floating at today.
To recall, Pakistan’s economic upsurge from 2003 to 2007 was upended by a few months of abnormally high oil prices. It should remind policymakers of the external vulnerabilities that can derail short-lived growth in Pakistan, frequently. Mistakes shouldn’t be repeated. Oh and of course, there are good and bad imports. The good ones are export enhancing and import substituting machinery, raw material and essential goods.
However, let’s not forget the depth of our pockets. Despite the “goodness” of some imports, we have to tame the dollar outflow.
What can be done?
One, all luxury items need to be aggressively taxed. Tax them so high that even the upper-most class considers them expensive.
The number of top brands’ luxury cars worth Rs10 million and above is increasing. Such non-productive outflows should be delayed.
Two, be wary of local producers’ pricing power. Admittedly, as imports get expensive, domestic producers increase prices, seeing lesser competition.
They ought to be encouraged to expand production and efficiency to compete globally.
Three, imports of goods from global e-commerce giants need to be discouraged one way or the other.
Due to cheap internet and smartphone availability, many households are importing day-to-day goods from these websites just because it is more convenient.
Four, before the impact of SBP’s Temporary Economic Refinance Facility (TERF)-induced export growth wanes, it’s time to come up with another cheaper export refinance facility with more income-equalising covenants.
Five, there should be better coordination to have a controlled and staggered pace of imports to be matched by increase in exports/ investments.
Six, priority should be given to export enhancing raw material and machinery that can accelerate long-term economic sustainability.
Seven, exports of less capital-intensive IT services should be significantly incentivised. For instance, for $100 worth of IT exports in a month, you don’t require one-off machinery of $1,000 nor raw material of $70 per month.
Eight, incentives should be doubled for freelancing of skills. You can experiment with nationwide stipends for digi-skills that individuals can sell abroad. It’s much better than the Ehsaas programme’s cash support. Teach the man how to fish, don’t give one to him.
Nine, capacity should be enhanced to utilise the domestic untapped resources of iron ore, copper, coal, minerals, oil and gas. There should be a ban on selling raw material, no matter how successful it sounds on the geo-economic spectrum. Get technology transfer to add value.
Ten, give a push to the local production of electric vehicles/ hybrids that can reduce long-term external shocks.
Eleven, incentivise exports of unused industrial capacities, such as cement, dairy, food and meat.
Twelve, set up world-class medical complexes to encourage medical tourism and export of manpower to the developed countries.
Thirteen, teach Mandarin to IT graduates in Pakistan so they can tap the ever-growing Chinese market for next leg of services export.
In a nutshell, maximum hours, discussions, resources, network and energies need to be utilised to increase long-term competitiveness of the country, boost exports to global markets, efficiently use domestic resources and fast-track import substitution.
Sometimes, we misread the writing on the wall and ignore the elephant in the room.
For example, it’s been years that LNG terminals are being planned. It’s been years that domestic gas production has been declining amid rising consumption. Local energy giants do not have financial resources to drill while we delay tough decisions on circular debt.
Each day’s delay is pushing us backwards globally. The concept of “opportunity loss” needs to be embedded in policymakers.
Similarly, every year food imports are increasing as the population ages and well, some people get richer. Yet, no material improvement is visible in agri-yields.
It’s clear that the global talent is moving towards learning technological skills while we have unemployment, misaligned education system and below-par universities to educate the minds.
How many seats we have created in the past five years that can accommodate students to compete with top IT graduates globally?
The boom-and-bust cycles have got to end. Higher global commodity prices would not be a justifiable excuse if the government is not able to control dollar outflows or increase dollar inflows.
With yawning imports, pressure on the rupee is on the rise, leading to inevitable inflation and further eroding the purchasing power of common man.
First few years of the current government have seen depreciation to fix previous problems. Experts quote a lag of 12 to 15 months to fully reflect the impact of currency depreciation and interest rate hikes.
From a bigger perspective, an import-oriented economy will not be able to gain business and investor confidence.
Pakistan couldn’t sustain a few months of oil prices near $85 per barrel. Let’s not even imagine the heat if JP Morgan’s assumption of $125 per barrel comes true next year.
We need to alter the course for 20-year planning. It’s not a long time for a nation building marathon. Oil has taken a breather and Pakistan is having a drinks break with a higher run rate to chase. No more dot balls. Trade deficit needs a U-turn.
The writer is an investment specialist with keen interest in political economy
Published in The Express Tribune, December 13th, 2021.