ISLAMABAD – PTI government unveils two new economic incentives for theexporters, Media Report has revealed.
Governor State Bank of Pakistan (SBP) Dr Reza Baqir announced two newmeasures designed to facilitate exporters in a press conference on theheels of a press conference led by Advisor to the Prime Minister on FinanceHafeez Sheikh on Monday in which he had also announced two pro-exportersmeasures – one of which was reiterated by the Governor: exporters wouldreceive 300 billion rupees of additional loans – 200 billion rupees fromcommercial banks and 100 billion rupees from the SBP – and the cost of theloan would be borne by the government under the export refinance schemewith a much lower applicable rate of 3 percent relative to the discountrate which is 13.25 percent, Business Recorder has reported.
One would hope that the discounted discount rate would reduce theexporters’ input costs sufficiently to give the needed boost to raise thetotal value of exports; however, the jury is still out as to whether thismeasure would make our exporters: (i) become competitive in theinternational market as a result given that other input costs remain higherthan prevalent in other competing countries; and (ii) those exporters whohad lost markets due to an overvalued rupee during Ishaq Dar’s tenure andmore recently due to an undervalued rupee, by 6 percent at last count,which has raised the cost of their import of raw materials andsemi-finished products, will be able to get back their lost buyers – achallenging prospect at best.
One would assume that the intent of the second pro-exporters’ measure DrBaqir announced was to deal with the undervalued rupee, a patently flawedpolicy in effect since May this year, namely authorising dealers to effectadvance payment up to 10,000 dollars per invoice on behalf of manufacturingconcerns for import of raw material and spare-parts for their own use onlyas well as for Pakistani firms acquiring services from abroad; the amountof 10,000 dollars is appallingly low and begs the question as to whichexporters/consultants, if any, are the target beneficiaries.
Dr Baqir clarified that the intent was to benefit the small and mediumenterprises (SMEs), however, Pakistan’s SME sector, excluding wholesalersand retailers, like in other developing countries, is mainlyindigenous-based and not reliant on imports.
The basic problems facing our SMEs, as highlighted repeatedly by academicsand government research institutes/relevant departments/ministries, are thelack of a conducive and enabling regulatory environment, need to developindustrial clusters and provide business development services in all areasof business management. More recently, there are concerns that with theanticipated entry of Chinese SMEs as part of the China Pakistan EconomicCorridor, local SMEs would take a hit.
Be that as it may, the fact that both the Adviser to the Prime Minister onFinance and the Governor SBP are focusing attention on increasing thecountry’s exports in value terms especially as remittances (critical fornarrowing the trade deficit) witnessed during the first quarter of thecurrent year, by 2 percent, must be appreciated. It is the most desiredform of earning foreign exchange because it not only reflects themanufacturing strength of a country but also its capacity to strengthen itsreserves by earning as opposed to borrowing.
However, the measures that the two economic team leaders have formulatedmay not be sufficient especially given that their pro-export measures aremore than offset by anti-export measures.