Razak Dawood betting big on export industry despite fiscal tightening

January 10, 2022 (MLN): Pakistan’s textile industry is at the centre of export-growth strategy, said Abdul Razak Dawood, Advisor to PM for Commerce and Investment in an interview with Reuters adding that he is pushing the government to bet big on the export industry by maintaining tens of millions of dollars of policy support even as the country looks to tighten its fiscal belt in a mid-year budget this month.

Authorities have supported the export industry since coming to power in 2018 by securing competitive energy prices and offering cheap credit. He had spoken to the prime minister and finance minister about the need for continued support as the government targets ambitious growth of 4.8% in the 2021-2022 financial year, the report said.

The government is looking to end tax exemptions in a number of areas in its mid-year budget as part of fiscal tightening efforts aimed at securing the release of $1 billion in IMF funds. The country entered a $6 billion support programme with the International Monetary Fund in 2019.

"People in this country don't understand what the importance of exports … export-led growth strategy (is)," Dawood Razak said.

He said continuing support for exports is the best way to tackle Pakistan's long-standing economic woes and achieve sustained growth.

Pakistan's exports hit a historic high of $25.3 billion in the 2020-2021 financial year, with textiles making up a whopping 60% of those exports. That helped the country achieve 3.94% GDP growth last year after a coronavirus-induced slump.

During 1HFY22, the exports have risen 24.7% YoY to stand at $15.1bn compared to $12.1bn in 6MFY21, the data released by the Pakistan Bureau of Statistics (PBS) showed last week.

"You can see that there's been a remarkable jump," the advisor said to Reuters.

One driver has been the government's policy of securing regionally competitive power rates to allow Pakistani exporters to match prices offered by peers such as India, Bangladesh and Vietnam, he said.

The central bank has also offered cheap credit to the industry after the coronavirus-induced economic slowdown.

To sustain this, Razak Dawood is encouraging the government to push through with a textile export policy which has faced push-back from various government departments.

The policy could include billions of rupees in regionally competitive energy rate assurances, concessional funds, drawbacks and tax rebates, experts and local media reports say.

While advisor to PM said months of negotiation between the commerce and other ministries have delayed the policy's release, it could be enacted as early as this month with certain "conditionalities".

Growing exports have been accompanied by a surging import bill, which Razak Dawood said has been driven by rising global fuel and food prices and purchases of COVID-19 vaccines.

Imports grew 65% YoY to reach over $40 billion in the first half of this financial year compared to $24.4bn in the same period of FY21, putting a strain on the country's $24 billion foreign exchange reserves.

The spike has not unnerved him, stating that it also reflected "good imports" of capital goods and raw materials -- a sign that the country's industries are growing, as per the report.

Some economic experts have criticized Pakistan's over-reliance and continuous support for the textile industry.

The advisor said he did not agree that the textile sector was "too pampered" but acknowledged the need to diversify Pakistan's exports: "In the long run, we should not just depend on just textiles … if something were to happen to textiles, where would the country go?"

Other experts do not agree with Razak Dawood's policy of sustained support, it added.

"The government needs to evaluate subsidies given to export-related sectors in light of the fiscal challenges as well as misuse of those subsidies," said Mohammed Sohail, CEO of brokerage Topline Securities. "In the past, we have seen that such support has not yielded desired results."

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