By Mushtaq Ghumman
The Federal Cabinet on Tuesday approved the Strategic Trade Policy Framework (STPF) 2020-25, hoping to achieve export target of $ 57.03 billion by 2024-25.
The Economic Coordination Committee (ECC) of the Cabinet approved STPF 2020-25 last week in terms of financial matters.
The scenario 1 assumed that the government interventions under the STPF and other initiatives would be minimal and the prices and cost of doing business would follow a status quo trend. Therefore, for FY 21 prices have been taken at 10.8% growth (actual value) followed by 8% in FY 22 and then onwards it will follow CAGR (6.5%) from FY 23 to FY 25.
The scenario 2 (medium) assumed that government’s interventions would reduce the growth in domestic prices and therefore the price increase would be 8% in FY21, 6.5% in FY 22 and followed by 6% between FY 23-25. The scenario 3 (optimistic) assumed that growth in domestic prices would be 7.2% in FY 21 and then will remain at 5.5% from FY 22 to FY 25.
Export target for FY 2021-22 has been fixed at $ 31.20 billion, for 2022-23, $ 37.88 billion and 2023-24 at $ 45.81 billion.
Exports projections for STPF 2020-2025 are based on a sound econometric partial equilibrium model. The explanatory variables used in the model include World GDP, Pakistan’s GDP and real effective exchange rate (i.e., nominal exchange rate, domestic prices, Pakistan’s export prices and competitor’s exports prices). Three scenarios have been constructed to project the future exports. The estimation specification, relevant elasticities and scenario assumptions are given.
The difference between the three scenarios was domestic prices of Pakistan which reflect the competitiveness and cost of doing business in the country. It is assumed that effective government interventions in terms of STPF, National Tariff Policy, Trade Facilitation, Technology Upgradation, Easy Financing and other on-going Ease of Doing Business initiatives will have an impact on competitiveness and thereby enhance exports.
According to the STPF Pakistan’s exports have been affected due to low level of export competitiveness faced by Pakistani enterprises due to higher cost of doing business and low product sophistication. The situation is caused by expensive energy compared to competitors, lower enterprise productivity, cumbersome taxation system, higher tariffs on intermediate and capital goods, lack of quality and standard ensuring ecosystem and unattractive regime for investment in exports-oriented sector.
Commerce Ministry argues that the 18% decline in Pakistan’s share in global market during the last decade means that Pakistan’s export competitiveness in the global market has been eroding. The regaining of the global market share vitally depends on the restoration of Pakistan’s export competitiveness. Ministry of Commerce has identified the following action areas and policy measures to enhance competitiveness:
Ministry of Commerce has been given the mandate to implement Tariff Policy with the major objectives of achieving streamlined and transparent tariff regime indicative of trade policy priorities, improving competitiveness of manufacturing sector through duty-free access of imported inputs, improving resource allocation, enhancing growth potential and increasing employment, encouraging value-addition, and removing anomalies in tariff structure.
Additionally, under Tariff Policy, special treatment would be accorded to the sectors identified in the STPF in order to promote exports from the country.
Priority sectors have been identified under the STPF after studying international demand trends on one hand and on the other the capacity and capabilities of various Traditional and Developmental export sectors of Pakistan. The former includes textile & apparel, leather, surgical instruments, sports goods, carpets, rice and cutlery. The developmental export sectors comprise of engineering goods (incl. auto parts), pharmaceuticals, marble & minerals, processed food & beverages, footwear, gems & jewellery, meat & poultry and chemicals.
The main focus of STPF will be on geographical and product diversification, manufacturing cost reduction through tariff rationalisation, pursuit of regional connectivity including Look Africa and Silk Route Reconnect policies, and enhancement of market access through Free Trade Agreements & Preferential Trade Agreements.
It also includes facilitation of logistics and tracking under the International Road Transports (TIR) Convention and enhancement of regional connectivity for access to Central Asian Republics, Turkey and Iran, through them to Europe and Russia.
In order to oversee the implementation, a cross functional National Export Development Board (NEDB) has already been constituted under the chairmanship of the Prime Minister, comprising of senior public sector officials of relevant organizations and private sector representatives. Regular meetings of the NEDB are being held in order to ensure the implementation of various policy measures.
The story was originally published in Business Recorder on December 22, 2021.