Pakistan Institute of Development Economics



Export Earnings Instability in Pakistan

Since independence, Pakistan, like many other countries, has been facing the problem of the balance-of-payments deficit. A number of policies have been introduced during different periods for rapid and continuous growth in Pakistan’s exports. These policies, like import substitution, devaluation of the rupee in 1972, export finance schemes, tax concessions, delinking of the rupee from the U.S. dollar in 1982, etc., have helped in boosting its exports to some extent but not enough to stabilise its export earnings. The fluctuations in export earnings are known to have serious consequences. Specifically, unstable export earnings affect the investment decisions by hindering the continuous import of industrial raw materials. This, in turn, impedes the growth of the industrial sector. Moreover, it causes fluctuations in the GNP and promotes uncertainty in the economy. This uncertainty plays a decisive role in the private sector’s hesitation to invest in the large-scale manufacturing industries, thereby hampering the country’s overall development. Keeping in view the possibly serious consequences of export earnings instability, a study exploring its causes is in order. Concentration of exports on a few commodities and exporting to only a few markets is among the possible explanations of the current instability in Pakistan’s export earnings. Due to commodity concentration, the chances of offsetting the impact of adverse price movements in the international market are reduced. This commodity concentration is often associated with the concentration on primary products and is, therefore, the basis for a policy of diversification away from primary products. A diversification away from primary products and towards industrial goods is desirable for another reason, not central to this paper; and that is that the terms of trade argument which claims that the relative prices of the primary products have increased slowly relative to the prices of the manufactured goods in the international market.

Qazi Najeeb, Ahmad Tariq