Gas shortage cripples exports

ISLAMABAD: Fiscal 2020-21 (July-June) proved an excellent year for Muhammed Saleem, as he exported garments worth $2.5 million. This year he aimed for a higher target, but the crippling gas shortages shattered all his dreams.

“I was aiming to export garments worth at least $3 million during the ongoing fiscal year,” said Saleem, who owns a garment factory in Karachi. “But even crossing the $2 million export-mark appears difficult now due to the gas shortage though I have massive export orders this year.”

All-Pakistan Textile Mills Association (Aptma) South Zone Chairman Asif Inam said that the unavailability of gas has badly hit export orders in December, while in January, the supply situation further worsened.

“Karachi contributes 48 per cent to the total exports of the country but the industry, despite the government’s assurances, is not getting sufficient gas supply,” he said. “Even Federal Energy Minister Hammad Azhar is not responding to our queries.”

As a matter of policy, the government prioritises domestic consumers and ignores the export industry, which is hurting the economy.

“Diverting 5 to 10mmcfd gas from domestic consumers won’t cause much problem… but we lost export orders and the buyers, who have approached us after a long time,” Inam said, adding that the Ministry of Energy lacks an alternative plan.

“The government should have booked 10 to 11 cargoes instead of seven to eight after witnessing an increase in the liquefied natural gas (LNG) prices but it wasn’t done,” Inam said.

The gas shortage is likely to dent exports by 20 to 30 per cent in January against the estimates of the Ministry of Commerce, he said. It is unlikely that the government will achieve the export target of $31 billion, he added.

“In the current situation, even if our exports touch $30 billion, it will be an achievement,” he said.

The exports posted a year-on-year growth of 25 per cent to $15.12 billion in July-December 2021. In December 2021, the exports saw a growth of 17 per cent to $2.7 billion from $2.37 billion in the same month last year. However, on a month-on-month basis, the exports declined 5.55 per cent in December, mainly because of the energy crisis.

Rehan Ahmed, the general manager sales for a leading company dealing in imported industrial equipment, while highlighting similar issues complained about the volatility in the currency market.

“Volatility in the exchange rate makes our job even more difficult… the way the dollar has been climbing up against the rupee, we don’t know what rate to quote to the buyer,” Ahmed said.

The company registered a significant growth in sales last year and also booked advance orders for the next three months.

“Our major buyers belonged to the textile sector and other export-oriented industries. Improvement in their profitability boosted our sales, but now getting orders from them will be an uphill task,” he said.

An increase in energy and other commodity prices in the international market severely damages the government’s plan to revive the economy.

Imports registered around 65.94 per cent increase to $40.580 billion during July-December 2021 from $24.454 billion in July-December 2020.

Trade deficit on a year-on-year basis widened by a sharp 106.4 per cent to $25.478 billion, driven largely by a nearly threefold increase in imports, compared with exports, according to the latest data released by the Pakistan Bureau of Statistics.

In December, imports of petroleum products increased 182 per cent, LNG 193 per cent, iron and steel 129 per cent, palm oil 49 per cent and machinery by over 100 per cent. Besides, the purchase of Covid vaccine worth $2.5 billion has further expanded the import bill.

Pakistan’s trade deficit has been widening for the last six months, owing to an unprecedented increase in the value of imported items, while the exports remained stalled at between $2.5 billion and $2.8 billion/month.

However, Adviser to the Prime Minister on Commerce Razak Dawood said that there were indications that the growth in imports had started to decline.

During December 2021, Pakistan’s imports slightly declined by 3 per cent on a month-on-month basis, but on a year-on-year basis they shot up 53 per cent.

Senior economist Ali Khizar said that last year the State Bank of Pakistan’s (SBP) decision to slash the key policy rate helped revive the economic activities. “Last year, the State Bank of Pakistan’s decision to bring down the policy rate to 7 per cent from 13.25 per cent coupled with the low energy prices in the international markets boosted the sentiment and revived the industrial activities,” he said.

The suspension of the International Monetary Fund (IMF) programme and relatively better handling of the Covid-19 pandemic also helped the government to revive the economy, Khizar added.

However, since the current account deficit already crossed $7 billion in the first five months and the trade deficit in the first half of the FY22 crossed $25 billion, which has almost doubled compared with the last year, the government has to take remedial measures such as monetary tightening and curbing the import bill.

“The government and the State Bank are already taking steps in this direction but obviously it will hurt the growth,” he added.

The highest-ever increase in imports also helped the Federal Board of Revenue (FBR) to collect maximum revenue at the import stage, sales tax, withholding tax and Customs duty; however, the government’s battle against the bloated trade deficit is reversing and may cause pressure on the external side because of record imports, Khizar said.

The government is also finding it difficult to stabilise the rupee, as it has already depreciated by over 10 per cent in the last one year, whereas the headline inflation has already crossed 12 per cent, which has put immense pressure on the government.

Besides, the opposition and the general public has criticised the government’s decision to withdraw tax exemptions worth Rs343 billion to appease the IMF.

Karachi Chamber of Commerce and Industry President Muhammad Idrees has also expressed reservations over achieving the government’s export target.

“The present gas supply situation and the lack of remedial measures on the part of the government is hurting the exporters,” he said.

He held both the federal and the Sindh governments responsible for the crisis.

“Both these governments have failed to improve the infrastructure in the Site and other industrial areas, despite the fact that 52 per cent of the country’s industries are situated in Karachi and its surrounding areas,” Idrees said.

Because of the mushroom growth of warehouses and other activities in the Site area, the land has become costlier, discouraging entrepreneurs to set up new industries in the area.

The countries such as China and India are moving towards vertical growth, whereas we’re following the old horizontal model, he said.

“We’re still depending on imported raw materials for exports and no government tried value addition in the locally-produced raw materials,” he said.

Regarding establishment of the Special Economic Zones under the China-Pakistan Economic Corridor (CPEC), the KCCI president said the government established the first SEZ at Rashakai without taking into consideration any plan for exporting the products manufactured there.

“The countries across the world prefer to set up industrial units near seaports to lessen the transportation costs,” he added.

With the harsh conditions of the International Monetary Fund, slowdown in remittances and low foreign direct investment, Pakistan’s economic outlook appears gloomy.

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