Pakistan has achieved the GDP growth at 5.97 per cent in FY-2022; however, this high growth is unsustainable and has resulted in financial and macroeconomic imbalances as it showed signs of excess demand and overheating through an increase in the import volume of capital and consumer goods, energy and non-energy imports.
Rupee devaluation, rising debts, taxation issues, below-the-mark growth of the large-scale manufacturing sector, and rising energy cost are the biggest barriers to economic growth. Political instability in the country also led to a huge increase in economic uncertainty.
However, on the external front, the exports, especially the textile exports grew remarkable on account of policy support provided including regionally competitive energy tariff rates, export facilitation schemes, enhancement in coverage and loan limits under LTFF to facilitate exports and tariff rationalized in various sectors in line with objectives of National Tariff Policy 2019-24. However, this growth may be reversed as big challenges are standing ahead.
Continuous torrential rains and floods have engulfed Pakistan’s cotton fields resulting in irreparable loss to the sector. In Punjab, many cotton-producing areas have suffered heavy damage due to stormy rains. The cotton crop of over 210,000 acres of land has been affected due to the flood, due to which the farmers had to bear a loss of Rs 356,33 million.
The price of the crop in Sindh has reached from Rs19,500 to Rs22,000 per maund; with reduced quantity and quality. While the price of cotton in Punjab is recorded between Rs22,500 to Rs24,000 per maund, In Balochistan, the price of cotton is Rs18500 to Rs.19000 per maund. The annual estimated consumption of a minimum of 12 million bales against expected cotton production of 5.5 million bales this year caused by the calamitous floods.
There is a minimum shortfall of six million bales and this has left us with no option but to import raw cotton from the US, Brazil and Egypt. India is the second largest cotton producer after the US. Importing cotton from other countries is not only expensive but would also take one to two months to reach Pakistan.
However, imports from India would be far cheaper and would reach Pakistan within three to four days. Delays in cotton import can pose risk to the timely delivery of export orders. In order to meet an emergent shortfall, 2.5 million bales of cotton are urgently required for the textile industry to fulfil its foreign business commitments.
This is high time to lift the ban on cotton imports from India to maintain the growth momentum in the textile sector.
Political turmoil is also inflicting tremendous losses on the economy. “Pakistan is among a few countries where political instability has damaged the economic growth despite having plenty of indigenous resources. Political instability has had a significant negative effect on economic growth and the government should take immediate measures to bring political stability, which is a prerequisite for a sustainable economy. Political stability and consistent policy implementation, both are crucial for economic growth and for the export sector to thrive and contribute dollar earnings to stabilise the balance of payments for a sustainable economic outlook.
The escalating inflation, rising interest rates and the Russia-Ukraine war have also squeezed economic growth. This has resulted in elevated prices of fuels and food and the situation is increasingly worsening. The prices of all inputs are skyrocketing currently thereby increasing the cost of doing business. Ultimately, this puts immense pressure on the economy of the country. The inflation rate has increased to 24.9% in July of 2022, the highest since October of 2008, from 21.3% in June, amid a slide in the rupee to fresh record lows.
The rapid devaluation of the rupee against the dollar is extremely disastrous for the economy as such exorbitant devaluation has increased the cost of doing business and also opened floodgates of inflation for the masses.
The evolving economic dynamics have changed the world economy and caused numerous difficulties. This includes rising food prices, inflation, and oil prices. Like many developing countries, Pakistan has also faced backlash because of international changes as well as national developments including political instability. The growth process has slowed down as a result of unstable exchange rates since they have an impact on capital flows, slowing down commerce, and undermining investor confidence.
Another challenge faced by the economy is the rising trade deficit for nine consecutive months owing to an unprecedented increase in imports. The country desperately needs to boost exports to narrow its ballooning trade deficit, which has surged to a record $48.38 billion in FY 2022. Pakistan clearly needs a national policy to boost the volume of export earnings and keep the import bill in check. Structural issues of the export sector are so complicated therefore, a long-term nationalistic approach is required to develop a new import management strategy. Sustainable and inclusive economic growth is the key to a strong and vibrant Pakistan, which can open the door for development and prosperity in the country.
The unprecedented hike in input prices at the international level and continuous fluctuation in the exchange rate has significantly increased the working capital requirements of the export industry. Government should focus on bringing input prices down to accelerate growth in textile exports,
The existing policies, especially the supply of energy at regionally competitive rates should continue and necessary financial support should be accorded. Initiatives must be taken to streamline the refund process. Old outstanding refunds are stuck in sales tax, duty drawback and income tax refund regime. The textile policy incentives i.e DLTL, TUF & mark-up Support scheme) are still outstanding.
The SEZs are being established to promote industrialization and investment in the country. Both local and foreign investors should be facilitated in a true sense bringing ease of doing business and all the procedural hurdles should be removed. Besides, the upgradation and development of infrastructure in industrial clusters especially, resolution of road infrastructure, healthcare centres, trauma centres and security issues have become the need of the hour. It is vital to gradually reduce effective rates of protection through a long-term tariff rationalization strategy to encourage exports. The market intelligence services are consolidated by supporting new exporters and evaluating the impact of current interventions to increase their effectiveness.
A long-term strategy to upgrade productivity must be designed and implemented to foster competition, innovation and maximizes export potential. The export industry had time and again proved that given a level playing field, it can compete against the best in the world. The sky is really the limit for our exports to grow and contribute substantially not only to foreign exchange earnings but also to overall sustainable economic growth.