Distressing developments

The drop in the remittances is clearly a reflection of the current economic slowdown in Middle Eastern countries

If one read the two news reports together — one on the front page of this newspaper’s August 11, 2016 edition (“Pakistan faces over 20% drop in foreign remittances”) and the other (“New fiscal year begins with trade deficit widening 18%”) in its business section of the same day, one would have to be too naive not to have suffered from a sinking feeling.

The drop in the remittances is clearly a reflection of the current economic slowdown in the oil-rich Middle Eastern countries — a direct consequence of a long-drawn declining trend in world oil prices. This region has remained our main source of remittances for decades as millions of Pakistanis are gainfully employed in these countries. The news of the significant decline in remittances follows reports of thousands of expatriate workers, including Pakistanis, having been fired by their local employers in Saudi Arabia without even clearing their past dues.

One can, of course, gloss over these distressing reports by attributing the shortfall in remittances to the annual post-Eid phenomenon. But let us be prepared as well for a scenario that would most probably be characterised in not so distant a future by not only a shortfall in remittances, but also the reverse exodus of Pakistani expatriate workers as job opportunities in Saudi Arabia and Gulf countries start drying up as a result of reduced public spending by the cash-strapped governments in these countries.

One had always suspected that a part of remittances coming from the Gulf states was, in fact, the white-washed black money accumulated through bribery and other black dealings and sent abroad through the non-informal clandestine routes. This kind of ‘remittances’ is also likely to slow down considerably, partly because of the recent amendment to the law relating to regulating the real estate market.

Adding to our economic woes is the report that in the first month of the new fiscal year, exports had plunged by 7% while imports saw a growth of 6.2% causing the trade deficit to widen by 18% at $2.1 billion which is $318 million more than what was posted in the same month last year. We can gloss over this not-so-happy situation well by expressing hope that in the coming months, exports would pick up in response to some of the measures like the zero-rated policy for five categories of exports, announced in the current budget. However, even if this hope were to materialise, the trade gap is likely to remain significantly wide because of the expected jump in imports as the China-Pakistan Economic Corridor (CPEC) projects start taking shape.

What, however, is highly worrying is the not so positive prospects for exports in the coming months if one were to take a look at the trend in exports in recent years. Exports had come down to an eight year low at $20.8 billion last year despite preferential access to European markets. In the year 2012-13, exports had fetched as much as $24.5 billion. But since then, exports seem to have been caught in a recessionary mode.

The major component of Pakistan’s exports, which is about 60% of the total exports, is made up of textile and related goods. But over the last three to four years, the textile sector has gone into despair because of a number of reasons.

The textile industry in Pakistan is said to have become unviable because of the heavily subsidised textile industries in the competing countries of the region. Declining exports, shrinking domestic market and capacity closures are also a source of concern for the industry. This situation is said to have arisen out of high cost, energy shortages, obsolete technology, absence of zero rating, shortage of raw materials, marketing disadvantages, absence of institutional support and policy-implementation divide.

In order to make the textile industry viable and regionally competitive, the government needs to develop a textile policy and prioritise its implementation; abolish all the incidentals on export; ensure uninterrupted energy supply; reimburse all the pending genuine refund claims expeditiously, and impose regulatory duty on yarn and fabric import. If the total textile chain is made viable and existing yarn is converted into fabric in made-ups, it could, according to textile industry experts, trigger an estimated additional export worth 15 billion dollars.

Published in The Express Tribune, August 13^th, 2016.

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