"Essential Measures for Strengthening the Export Sector"

Written By : Aamir Baig  

Prime Minister of Pakistan Shahbaz Sharif has set a target to increase Pakistan's exports to $60 billion within three years. During a recent meeting of the National Export Development Board, he stressed the importance of addressing exporters' challenges, promising to personally oversee the board's progress every six weeks. His focus includes boosting agricultural exports through better seeds and high-yield crops, and reducing power costs for industries.

However, despite this commitment, no significant action has been taken since the meeting. Relevant government departments have yet to engage stakeholders or address the problems exporters face. This delay is particularly concerning given that the recent federal budget imposed additional taxes on the export industry, frustrating industry leaders and trade organizations.

The textile sector, responsible for over 60% of Pakistan's exports, exemplifies the challenges. The knitwear industry, a major part of this sector, is struggling due to rising production costs, high mark-up rates, and energy tariffs. These issues have increased production costs and weakened Pakistan's competitiveness in the global market.

To achieve the ambitious export targets, the government must take immediate action. This includes incentivizing industries to switch to solar energy, lowering bank mark-up rates, and addressing the energy crisis. Additionally, delayed refunds owed to exporters need to be processed quickly to resolve cash flow problems.

The State Bank of Pakistan should also support small and medium enterprises in the knitwear sector by providing them with easier access to loans. Ensuring competitive energy tariffs is crucial for helping Pakistani exporters secure international orders.

Prime Minister Shahbaz Sharif has pledged to reduce power costs for industries and involve them in policy-making to address private sector challenges. While his commitment to boosting exports is commendable, nearly two and a half weeks have passed since the National Export Development Board meeting, with little to no action taken. Government departments have yet to engage with stakeholders or address the pressing issues faced by exporters.

Despite last year's total exports reaching $32 billion, the current fiscal budget has imposed additional taxes on the export industry, further frustrating the sector. This has led to widespread dissatisfaction among industry representatives, who view the government's claims of increasing exports as mere lip service. Similar promises were made by previous administrations, including the caretaker government, yet Pakistan's exports have seen minimal growth in recent years.

The textile sector, which makes up over 60% of Pakistan's exports, is particularly hard-hit, reflecting the ongoing struggles within the broader export industry. The lack of substantial progress casts doubt on the government's seriousness about achieving its export targets.

Despite repeated promises from various governments to support the export industries, Pakistan’s knitwear sector, which holds the largest share in value-added textile exports, continues to struggle. Rising production costs, driven by high mark-up rates and energy tariffs, have significantly reduced the sector's global competitiveness. As a result, even minor advancements are often offset by new challenges, pushing the industry two steps back.

To truly boost exports, the government must take concrete steps, such as providing financial incentives for the sector to adopt solar energy, thereby lowering energy costs and reducing carbon emissions. Additionally, reducing bank mark-up rates to single digits is essential. Immediate action is also needed to release long-overdue refunds to exporters, which would alleviate capital shortages that hinder growth. Reinstating the zero-rating sales tax regime and ensuring refunds within 72 hours would further streamline the process.

The State Bank of Pakistan should allocate a special quota for loans to small and medium enterprises (SMEs) within the knitwear sector, recognizing the critical role SMEs play in sustainable industrial development. Moreover, aligning energy tariffs with those of competing regional countries is crucial for securing export orders and maintaining competitive production costs. With targeted support, the knitwear sector can continue to stabilize Pakistan's economy and increase foreign exchange earnings.