ISLAMABAD: Prime Minister Nawaz Sharif will announce an incentive package today (Tuesday) in order to give a boost to plunging exports, which experts argue will provide only a temporary relief, as the structural issues pulling back growth in exports remain unaddressed.
The prime minister is offering the incentive package on the condition that exports will be increased by at least 5% by the end of the current fiscal year. This seems a gigantic task as exports have already fallen by about 4% in the first half.
The incentive package – the second in the last one year – will mainly provide relief on exports of raw and finished goods in the shape of rebate, according to officials of the Ministry of Commerce.
It will also withdraw regulatory duties on certain imported inputs being used in the manufacturing of goods. The rebate is being offered in the range of 3% to 6% of export value, depending on which production stage a product is.
The size of the incentive package is expected to be over Rs60 billion, but actual amount cannot be determined until the exporters file their claims. The Ministry of Finance has not allocated funds for the package and it will have to issue a supplementary budget.
The lowest rebate would be offered on yarn while the maximum relief would be given on exports of garments, officials added.
However, the relief will still be significantly lower than what India is offering to its exporters to compete with Pakistan in global markets.
Pakistani exporters are enjoying duty-free access to the 27-nation European Union, but they still struggle to enhance exports.
Pakistan’s trade deficit widened 22.2% or $14.5 billion in the first half of the current fiscal year due to a steep decline in exports and double-digit growth in imports. Exports fell 3.82% to $9.9 billion in July-December FY17.
“The incentive package is the need of the time to make exporters competitive,” commented Dr Miftah Ismail, Chairman of the Board of Investment (BOI).
An appropriate exchange rate, liquidity improvement with release of all sales tax refunds and tariff rationalisation are also required to allow the exporters compete effectively in the global markets, said Dr Hafiz Pasha, former finance minister.
Owing to the current exchange rate, imports had become cheaper, which was not sustainable in the long run, he said.
The Ministry of Water and Power, Ministry of Petroleum and BOI also needed to work hard to make the exports competitive, said Ismail.
According to International Monetary Fund’s projections, Pakistan’s rupee was overvalued by at least 5%.
Commerce Minister Khurram Dastgir did not respond when asked as to what extent the rebate would address problems of the exporters in the absence of resolution of other equally important issues.
The rupee depreciation was not good for the industry in the long run as imports were important inputs for the manufacturing of goods, said Javed Bilwani, Chairman of the Pakistan Apparel Forum.
However, he termed the incentive package a political stunt, which would not resolve the industry’s problems.
Bilwani demanded that the government pay back the arrears of general sales tax refund and Drawback of Local Taxes and Levies (DLTL). He claimed that over Rs100 billion was outstanding that had created liquidity problems for the industry.
According to him, a reduction in energy tariffs to the level of those in regional countries would be the real solution. High taxes, mainly indirect at various stages of production, were another reason for the industry’s uncompetitiveness.
Last year, the prime minister had announced that the government would cut energy tariffs for the industries, but Sindh-based industries were not provided the relief, claimed industrialists. The benefits given to the Punjab industries were also lower than what the premier had announced.
Published in The Express Tribune, January 10th, 2017.