Foreign Trade of Pakistan
Foreign Trade of Pakistan
Pakistan has recorded laudable export performance during the last
several years, with exports growing at an average rate of almost 16
percent per annum over the last four years 2002-03 to 2005-06. Given the
importance of export in the economic transformation of any nation, the
ability to achieve strong export-led growth has become a recurring theme
in policy making in Pakistan. The strong export growth in Pakistan
benefited a great deal from the rapid improvement in the international
trading environment, which in turn was the direct consequence of the
most ambitious and successful round of multilateral trade negotiation in
Uruguay under aegis of the General Agreement on Tariffs and Trade
(GATT). This trade negotiation succeeded to a great extent in bringing
down tariff barriers, particularly in the international trading
environment.
Pakistan’s import growth slowed to a normal level in the current
fiscal after surging at an average rate of 29 percent per annum during
the last four years. Four years of strong economic growth strengthened
domestic demand which triggered a consequential pick up in investment.
The rise in investment demand led to a massive surge in imports. Though
Pakistan continued to maintain its strong growth momentum. import growth
has decelerated to its trend level for a variety of reasons including
the pursuance of tight monetary policy during the year. The lower growth
in imports is likely to improve trade deficit from 9.5 percent of GDP
last to 9 percent this year. However current account deficit is expected
to be around 5 percent of GDP as against 4.4 percent last year.
Importance of Foreign Trade
Importance of Foreign Trade of Pakistan
1. Export of Raw Material and Semi Finished Goods
Pakistan’s exports consist of raw material and semi-finished goods,
which fetch very little price in international market. Most dependence
of export is on cotton, cotton textile products and basmati rice,
whereas production of these goods depends upon natural factors. If
natural circumstances go against the cultivation of cotton and rice then
export earnings reduce drastically.
2. Import of Machinery and Industrial Raw Material
Pakistan’s imports consist of machinery, industrial raw material,
vehicles, medicines, electronic goods and other value added items. The
prices of these items are increasing in international market. Therefore
the total import bill is increasing day by day.
3. Import of Agricultural Products
Pakistan is an agricultural country but to our ill fate we import many
agricultural food items such as soyabean oil, palm oil, tea, pulses,
spices and many times sugar and wheat from other countries thereby
increasing our import bill.
4. Increased Use of Petroleum Products
In Pakistan number of motor vehicles and other means of transports are
increasing. Similarly due to industrialization, use of machinery is
increasing. All these factors are increasing demand of petrol and
petroleum products, prices of which are rapidly increasing in the
international market, causing increase in the Pakistan’s import bill.
5. Import of Services and Other Invisible Expenditures
Most of the export and import trade of Pakistan is carried on by foreign
shipping companies, as our shipping industry is not developed and we do
not have many cargo ships. Similarly foreign banks and insurance
companies render their services in international trade. Thus lot of
foreign exchange is spent on such service charges.
6. Limited Trade Relations
Pakistan has very limited trade relations. Most of the trade is being
carried out with UK, USA, Japan, Europeans Union and Middle East.
7. International Trade by Private Sector
Private sector is dominating international trade of the country.
Businessmen themselves are finding export markets by sending their
representatives for trade negotiations and trade.
8. Unfavorable Balance of Payments
Balance of Trade is usually against Pakistan. Pakistan’s exports
earnings from raw cotton, textile goods, rice, leather and surgical
products are very less where as expenses on imports of machinery,
industrial raw material, petrol and on electronic goods are greater.
Pakistan receives less and pays more, which makes its balance of trade
unfavorable.
Balance of invisible is always against Pakistan. It is a statement of
Pakistan’s use of foreign ships, insurance companies and banks for
which Pakistan has to make payments in foreign currency. Pakistani does
not have ships, banks and insurance companies abroad, which may perform
services and earn foreign exchange. The drain of foreign exchange is too
much on this account.
Balance of Payments is always against Pakistan. It is a statement of a
country’s trade (visible) and financial transactions (invisible) with
the rest of the world. Since both the above balances are against
Pakistan, therefore final balance of payments is also against it. This
is being balanced by borrowings from World Bank, IMF and friendly
countries. Unfavorable balance of payment increases the debt liability
of Pakistan.
9. Unfavorable Terms of Trade
Terms of Trade are a price index, which shows a country’s exported goods
prices relative to its imported goods prices. It is prepared by taking
an index of prices received for export and an index of prices for
imports and then export prices are divided by import prices. An
improvement in a country’s terms of trade occurs if its export prices
rise very slowly whereas import prices rise fast.
Major Exports of Pakistan
Major Exports of Pakistan
1. Raw cotton, Textile products and Cotton yarn.
2. Rice.
3. Leather and leather products.
4. Carpets and rugs, Tents.
5. Synthetic textiles.
6. Surgical instruments.
7. Sports goods.
8. Readymade garments.
9. Vegetable, fruit and fish.
10. Engineering goods.
11. Chemicals and Pharmaceutical products.
Exports of Pakistan
Exports were targeted at $18.6 billion or 12.9 percent higher than
last year. Export of food group declined by 3.5 percent. This declined
is caused by a 2.6 percent and 14.3 percent decline in exports of rice
and fruits. Export of rice declined due to lesser production caused by
adverse weather condition which kept the domestic price higher. It was
more profitable to sell within the country than to export. Exports of
textile manufactures grew by 0.2 percent. Prominent among these are
export of knitwear 13.9 percent, readymade garments 6.8 percent, made up
articles 8.9 percent, cotton yarn 4.6 percent and towels 2.6 percent.
Exports of other textile materials registered a high double digit growth
of 17.2 percent. Export of raw cotton, cotton cloth and bed wear on the
other hand registered a decline.
Direction of Exports of Pakistan
Although Pakistan trade with a large number of countries its exports
are however highly concentrated in few countries including USA, Germany,
Japan, UK, Hong Kong, Dubai and Saudi Arabia which account for one-half
of its exports. The United States is largest export market for
Pakistan, accounting for 28.4 percent of its exports followed by UK and
Germany. Japan is fast vanishing as export market for Pakistan as its
share in total exports has been on decline for one decade, reaching less
than one percent from 5.7 percent a decade ago.
Pakistan needs to diversify its exports not only in terms of
commodities but also in terms of markets. Heavy concentration of exports
in few commodities and few markets can lead to export instability.
Other issues which need to be addressed include low value added and poor
quality, obsolete use of machinery and technology, higher wastage of
inputs adding to the cost of production, low labor productivity, little
spending on research and development, export houses lacking capacity to
meet bulk orders, inability to meet requirements of consumers I terms of
fashion and design, non-adherence to contracted quality and delivery
schedule, lack of marketing techniques etc.
Major Imports of Pakistan
Major Imports of Pakistan
1. Machinery.
2. Petroleum.
3. Chemicals.
4. Vehicles and spare parts.
5. Edible Oil.
6. Wheat.
7. Tea.
8. Fertilizers.
9. Plastic material.
10. Paper Board
11. Iron ore and steel.
12. Pharmaceutical products.
Imports of Pakistan
Pakistan’s imports are also highly concentrated in few items namely,
machinery, petroleum and petroleum products, chemicals, transport
equipment, edible oil, iron and steel, fertilizer and tea. These imports
accounted for 73% of total imports during 2006-07. Among these
categories machinery, petroleum/petroleum products and chemicals
accounted for 53.4% of total imports.
Direction of Imports of Pakistan
Pakistan’s imports are highly concentrated in few countries. Over 40
percent of them continue to originate from just seven countries namely,
the USA, Japan, Kuwait, Saudi Arabia, Germany, UK and Malaysia. Saudi
Arabia is emerging as major supplier to Pakistan followed by the USA and
Japan. The shares of USA and Japan, with some fluctuations, exhibited a
declining trend because of the shift in the import of machinery/capital
goods and raw materials to other sources. On the other hand, the share
of Pakistan’s imports from Saudi Arabia has been rising due to higher
imports of POL products. Malaysia share has shown rising, as well as,
falling trends over the years mainly on account of fluctuations in palm
oil prices
Improvement in Balance of Payments
Measures for Improvement in Balance of Payments
1. Increase in Exports by Providing Different Incentives
First important step for improving balance of payments of Pakistan is to
increase its exports. It is suggested that following steps should be
adopted in this regard.
- Decrease in cost of production, for which interest rate for new industries should be reduced.
- Cost of transport particularly railway freight should be minimized.
- Custom duties on the export-oriented industries should be reduced.
- Cost of transport particularly railway freight should be minimized.
- Modern techniques of production should be used.
- Instead of exporting raw material, value added goods should be produced and exported.
- Those industries should be encouraged and set up which use locally produced raw material.
- Labor productivity should be enhanced by imparting education, training and providing different types of facilities of life.
- Goods of different varieties keeping in view the demand and
requirement of foreigners should be developed, produced and exported.
2. Decrease in Imports by Setting up Key Industries
Second important requirement for improving balance of payments is to
decrease imports. It is suggested that after adopting following steps
imports will be decreased.
- Import substitution industries should be set up.
- For production of edible oils, seeds should be grown locally.
- Tea consumption should be discouraged.
- Production of food grains such as wheat should be increased.
- Import of luxurious items should be banned or heavily taxed.
- Basic and key industries should be developed which can produce machinery and spare parts for manufacturing industries.
3. Increase in Invisible Earnings
Thirdly, for improving balance of payments expenses on invisibles are to
be decreased and to increase exports. After adopting following steps,
invisibles balance can be improved.
- National shipping company should be strengthened for assisting the
international trade. Freight charges of this company will become a
source of saving of foreign exchange.
- Domestic commercial banks and insurance companies should be
strengthened and be given task for facilitating Pakistan’s international
trade.
- Expenses on our embassies abroad, which involve foreign exchange
should be reduced. VIP culture should put to an end and unnecessary
tours and medical expenditure of high government officers and
politicians in foreign countries hospital should be disallowed.
- Foreign countries visits by the general public should be discouraged
in order to save the precious foreign exchange of the country.
- The efficiency of Trade Attaches of Pakistan Embassies should be
improved. It is their duty to do their best for developing markets of
Pakistani products in the countries they are posted.
4. Search of New Markets
Fourth important requirement for improving the balance of payments is
the expansion of trade relations. After adopting the following steps
trade relations will be expanded.
- Govt. officials and business community should participate in trade fairs arranged by foreign countries.
- Trade Agreements with different countries should be made.
- Seminars and Trade Exhibition should be arranged within country in which foreign delegates should be invited to participate.
- Booklets, brochures, pamphlets about Pakistani products and economy
of Pakistan should be distributed to foreign business community.
- Research for marketing should be conducted.
5. Quality and Packaging of International Standard
Exportable Goods should be of international standard; their packaging
should meet the same standard. Good packaging provides safety and
security of the product and is not destroyed during handling and
shifting process.
6. Revival and Restoration of Sick Industries
Sick industries should be revived. This will increase output of
industrial goods, which will result in the decrease of prices. The cheap
goods will become a good market for buyers and they will import more
from Pakistan, thus the export proceeds of the country will increase.
7. Foreign Joint Ventures
Pakistan’s exports can be pushed up after collaboration of foreign
investors. The foreign partners have more contacts in foreign markets
and in order to increase profitability of industry, foreign partners
will market the products in their countries hence Pakistan’s exports
will increase.
8. Promotion of Labor Intensive Industries
Small and cottage industries are labor-intensive. Products utilizing
more cheap labor with have a comparative cost advantage which will help
in decrease in cost. Industries such as, leather goods, readymade
garments, surgical instruments sports goods should be developed for
export purpose.
How Pakistan’s Export can be Increased
How Pakistan’s Export can be Increased
1. Diversification of Exports.
2. Trade facilitation.
3. Increased market access.
4. Enhancing export competitiveness by reducing cost of doing business.
5. Capacity building on WTO and trade negotiations.
6. Developing export of services.
7. Improving compliance of quality infrastructure.
8. Techno-legal proposals.
1. Focus on Neglected Regions/Countries
Trade policy aimed at focusing on neglected regions/countries. The
Ministry of Foreign Affairs in consultation with the Ministry of
Commerce has appointed Honorary Counsels General in important cities of
the region to focus on trade matters to boost export. In this regard the
Board of EMDF has approved the funds for Pakistan’s Embassies to hire
local marketing executives to be funded from Export Market Development
Fund. This aspect already stands implemented.
2. Marketing Efforts in USA and European Union
Another important point of the current trade policy was to boost trade
with USA and EU. For this purpose, Market Company for EU and Consultants
for USA have been hired and this aspect has also been implemented.