The government must either rationalise the external rupee value or else clear refunds to exporters on a timely basis if export targets are to be met, so stated Additional Secretary, Ministry of Commerce, Rubina Athar, to the Monetary and Fiscal Policy Board chaired by the Federal Finance Minister Ishaq Dar. This statement boldly and baldly clarifies the impediments facing the country’s exporters – boldly because there is a perception that the overvalued rupee is a deliberate policy measure designed to understate the rising budgetary external debt repayments; and baldly because, even though independent economists/media have been highlighting an overvalued rupee, no civil servant had been reported to have brought this to the notice of the political government. Pakistan, in the revised estimates of last year allocated 342,098 million rupees for servicing of foreign debt and foreign debt repayments with 433,814 million rupees earmarked in the current year’s budget – a very substantial amount.
Economic theory stipulates that a strong currency acts as a detriment to the country’s exports and, instead, fuels imports thereby negatively impacting on the country’s trade balance and productivity. However, a policy that deliberately keeps a currency strong defies logic especially in Pakistan where the trade deficit is a source of serious concern and exports rhetorically at least touted as the way forward. In this context, it is relevant to note that even the International Monetary Fund (IMF) in its sixth quarterly review dated March 2015 stated that “[IMF] staff stressed that the recent appreciation of the dollar against other currencies, the lack of downward exchange rate flexibility, and a high inflation differential relative to trading partners has caused a further loss of Pakistan’s export competitiveness in world markets.”
There is little doubt that exports remain hostage to law and order problems in the country and it takes only one incident like the recent Safoora tragedy to reactivate foreign buyers’ concerns with respect to visiting the country to view products prior to firming up their orders. While the law and order situation is extremely challenging and remains the focus of the establishment it is significant that delays in refunds by the Federal Board of Revenue (FBR) are causing serious cash flow problems for our exporters. The FBR justifies delays by pointing out accurately that there are many fraudulent claims and it is therefore necessary for the Board to first evaluate the genuineness of the claim and only then issue the refund. There is no doubt that the exporters as well as the FBR have genuine issues and perhaps a better option would be, as recommended by Athar, to revive the zero-rating regime for exporters.
Athar did highlight other external factors that are negatively impacting on exports notably the decline in the international price of cotton and yarn; however, in this context it is relevant to note that the Ministry of Textiles appears to have been merged with the Ministry of Commerce and this, according to an anecdotal survey carried out by Business Recorder, accounts for a decline in textile and related products exports to the rest of the world barring the European Union (because of the grant of GSP Plus status to Pakistan). Textiles do form the bulk of the country’s exports and a dedicated ministry would not be remiss especially given the fact that the sector does not get its due share relative to its contribution to the Export Development Fund.
To conclude, there is a need to undertake some administrative changes by the political leadership, understand that a strong rupee is not necessarily a positive indicator with respect to the state of the economy and not to create hurdles in the way of genuine exporters’ liquidity.