Making exports a policy priority: nothing mercantilist about it

Publication Year : 2021

Exports are crucial for Pakistan’s development, yet, they have been stagnant for too long. Increasing them should be a policy priority. This column presents three arguments in praise of exports and suggests avenues for boosting them. Exports bring foreign exchange into the economy, essential to finance well-needed imports, and to reduce macroeconomic risks. They also create good quality jobs, pulling labor out of low-productivity informal activities. And, importantly, exports are associated with productivity gains through increased scale and increased exposure to sophisticated global clients. To boost exports, the Government of Pakistan needs to make exporting more profitable than selling domestically by adjusting its tariff policy and modernizing its export and investment promotion initiatives. A little background… Pakistan’s exports have stagnated since the turn of the century. Despite the rapid recovery from the COVID19 shock – exports of October and November 2020 are roughly on par with those of 2019 – a long-term examination of export performance reveals stagnation. In 1990, the export market share of Pakistani firms stood at 0.19%. By 2019, it had fallen by almost 40% to 0.12%. The combination of three elements seem to be behind this trend. First, little capacity to attract FDI, crucial to take advantage of the powerful export platforms that GVCs have become during the last two decades. Second, an overvalued exchange rate during much of the 2010s that made exporting more difficult. Third, a tariff policy that rewards domestic sales rather than exporting seem to be behind this trend. Indeed, the country is today more inward looking than it was at the turn of the century.