Pakistan needs more investment, boost exports to offset widening trade deficit

Hamza Habib Our Correspondent

28th Oct, 2021. 08:32 pm
World Bank $19.8 million aid to Pakistan

ISLAMABAD: The World Bank has said that due to strengthened domestic demand, imports have grown much higher than exports in recent months, leading to a large trade deficit.

The World Bank in a report released on Thursday said to sustain strong economic growth, Pakistan needs to increase private investment and export more.

In examining the country’s persistent trade imbalance, the report identifies key factors that are hindering exports: high effective import tariff rates, limited availability of long-term financing for firms to expand export capacity, inadequate provision of market intelligence services for exporters, and low productivity of the Pakistani firms.

“The long-term decline in exports as a share of GDP has implications for the country’s foreign exchange, jobs, and productivity growth. Therefore, confronting core challenges that are necessary for Pakistan to compete in global markets is an imperative for sustainable growth,” said Derek Chen, senior economist of the World Bank.

“Since longstanding issues with the persistent trade gap have resurfaced, this edition of the Pakistan Development Update on “Reviving Exports” provides a timely, in-depth assessment and policy recommendations that can help spur exports.”

The report provides the policy recommendations that can help improve Pakistan’s export competitiveness, including reducing the effective rates of protection through a long-term tariff rationalisation strategy to encourage exports, reallocate export financing away from the working capital and into capacity expansion through the the Long-Term Financing Facility, consolidate market intelligence services by supporting new exporters and evaluating the impact of the current interventions to increase their effectiveness, design and implement a long-term strategy to upgrade productivity of firms that fosters competition, innovation and maximises export potential.

The report said Pakistan’s economy recovered in the fiscal year 2021, in part due to the government’s effective use of targeted lockdowns to manage the spread of Covid-19, while also permitting economic activity to largely continue.

In the report, it was mentioned that the country’s real GDP growth rebounded to 3.5 per cent in FY21, after contracting 0.5 per cent in FY20 with the onset of the global pandemic.

In addition, inflation eased, the fiscal deficit improved to 7.3 per cent of GDP, and the current account deficit shrunk to 0.6 per cent of GDP, the lowest in a decade.

“With the effective micro-lockdowns, record-high remittance inflows and a supportive monetary policy, Pakistan’s economic growth rebounded in FY21,” said Najy Benhassine, World Bank country director for Pakistan.

“These measures, together with the expansion of the Ehsaas programme and support to businesses, were key to strengthening the economy and recovering from the economic fallout associated with the Covid-19.”

Adsence 300X250