WEB DESK: According to a Business Recorder exclusive, Prime Minister Nawaz Sharif has reportedly termed the draft Strategic Trade Policy Framework (STPF) ‘not convincing…it cannot help achieve a quantum jump in exports.
‘ If the past STPFs are anything to go by, the draft STPF (2016-18) no doubt projected a rise in exports that was too ambitious prompting the Prime Minister to term it unconvincing and/or unrealistic. The process of formulating the STPF requires the Commerce Ministry to prepare the draft subsequent to consultations with all the stakeholders and the list is quite exhaustive.
It includes not only the exporters and importers but also relevant government ministries/departments most particularly the Ministry of Finance and its associated divisions/departments to assess the budgetary implications of any fiscal incentives contained in the framework. Finance Minister Ishaq Dar, however, heads the cabinet sub-committee on production and exports, as well as 35 other committees, and hence he formally approved the draft prior to its submission to the Prime Minister for final approval. Reportedly, he only objected to interest/mark-up subsidy proposed to be extended to exporters and argued that this was not an effective tool though ironically, he did support interest subsidy under the Prime Minister’s Youth Programme.
The question that arises is whether Dar focused only on the revenue and expenditure implications of the policy prior to granting his approval given his inordinate focus on reducing the budget deficit, largely at the cost of Gross Domestic Product growth; or whether he delved deeper into the framework’s contents. What was required, in our opinion, was an evaluation as to whether the policy could not only reverse the declining trend in exports evident in recent months but fuel exports in support of the balance of payment (BoP) position that is at present supported by remittances as well as government borrowing.
While it is quite possible but in case of Dar highly improbable, a carefully read of the draft could not be done given the massive demands on his time. The government’s critics argue that while around 50 percent of the decline in exports can be attributed to the fall in the international commodity prices (consisting of our major export items) yet the other 50 percent can be attributed to policies supported by the Ministry of Finance for the past two and a half years. These policies include an overvalued rupee with the objective of understating the external debt, and delays in refunds by the Federal Board of Revenue (FBR), under the de facto administrative control of the Ministry of Finance, to meet the government’s revenue needs which is seriously compromising the liquidity of exporters with a consequent negative impact on their productivity.
The textile sector contributes the largest amount to Pakistan’s total exports (around 60 percent) and has repeatedly expressed concern over the usage of Export Development Fund (EDF) levied at the rate of 0.5 percent on all exports by accusing the Commerce Ministry of using the bulk of EDF for sectors other than the textile sector. The energy crisis is yet another impediment to export growth and has been the reason for relocation of textile mills to other countries (particularly Bangladesh) as local exporters have been losing clients due to their failure to meet the agreed delivery schedule. Clients once lost are not easy to woo back given the intense competition by exporters in other countries.
To conclude, while past STPFs were mainly wish lists and consisted of cut-and-paste from previous frameworks yet one would hope that the Prime Minister’s unsupportive assessment of the STPF 2016-18 may set a new trend whereby policies/frameworks are realistic and identify appropriate incentives that have the capacity to be implemented and to achieve targets.
Source: Business Recorder