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Pakistan’s exports against peer countries remain unsustainable in last decade: SBP

State Bank of Pakistan

State Bank of Pakistan Photo: File

KARACHI: The State Bank of Pakistan (SBP) has said that the country’s exports during the last decade remain sporadic and unsustainable, compared with the peer countries.

The peer countries, such as India and China, have fared better than Pakistan, the SBP said in its annual report on the State of Pakistan’s Economy released this week.

The State Bank said Pakistan had faced a balance of payments crisis, as those countries had not faced such issues.

“As per [the] World Integrated Trade Solutions, between CY10/19, Pakistan’s exports have risen by mere $2 billion, whereas, for India and China, the absolute changes amount to $103 billion and $921 billion, respectively. In the same period, Pakistan’s exports averaged $23 billion, while India and China averaged $293 billion and $2.2 trillion, respectively.”

In terms of GDP, in 2019, exports of Pakistan, India and China were around 9 per cent, 11 per cent and 17 per cent, respectively.

Already paltry, Pakistan’s share in the world exports declined from 0.13 per cent in CY10 to 0.12 per cent in CY19. India’s global share increased from 1.31 per cent to 1.57 per cent; and China’s from 9.37 per cent to 12.17 per cent.

“Based on several studies, we briefly summarise four main reasons as to why exports of Pakistan have not risen sustainably,” the SBP said.

Further, at HS-6 level, Pakistan’s lack of product diversification is also reflected in the fact that its top 50 export products (in terms of USD value in 2019) occupy around 63 per cent of the total exports.

Whereas, in the case of India and China, top 50 products account for around 49 per cent and 38 per cent, respectively.

The market diversification leads to new opportunities of higher and more sustainable earnings, while making the exporting firms less vulnerable to market-specific demand fluctuations.

Pakistan’s export destinations are far less diverse than India and China. To understand the gap, first consider World Integrated Trade Solutions’ regionalisation of the world, it said.

In 2019, Pakistan’s average number of HS 6-digit products shipped to all these regions was 47 per cent of the total 2,824 products. In contrast, India’s and China’s averages were 87 per cent and 90 per cent, respectively, of a little over 4,400 products in each case.

These numbers show untapped potential in regional markets around the globe for Pakistan, which include Latin America and Caribbean; Sub-Saharan Africa; North America; South Asia; East Asia and Pacific.

For instance, Latin America and Caribbean countries imported textiles and clothing items worth $33 billion in 2019. Imports from China and India clocked in at $13 billion and $1.6 billion, respectively, whereas, imports from Pakistan were only $344 million, the SBP added.

According to the Global Value Chain Development Report 2019, more than two-thirds of the global trade channels through global value chains (GVCs), wherein production crosses at least one border, and usually many borders, before final assembly. GVCs help accelerate growth in export through two channels; backward participation or integration, where a country imports intermediary goods to produce and export products where it may have competitive advantage. For example, Bangladesh imports cotton fibre and yarn to make and export cotton-based apparel forward participation, where a country exports intermediary goods because it does not have the competitive advantage in making the related finished products.

For instance, the US exports iPhone’s design and engineering items to China for assembly, which is cheaper and more competitive.

Pakistan’s GVC participation, which is a sum of backward and forward participation, has been behind that of India and China for the better part of the time period since 1990. Although its participation has converged in the post-2007 crisis period, it is still lagging.

The SBP said that Pakistan is still not deeply integrated into GVCs because of two major reasons. One, the country’s exports are concentrated in low value-added products and primary commodities, which generally do not require imported inputs. Two, Pakistan’s tariffs on intermediate goods are four times the World Bank, while analysing, Pakistan’s textile and apparel exports noted that the exporters are depended on low-quality cotton input, leading to the lack of integration in the global textile and apparel value chain.

This dependency could be traced to the domestic cotton industry and the exporters not being able to easily access synthetic fibres and high-quality cotton at world prices (due to high protectionism) and in time to fulfill orders, as in the case of Bangladesh.

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