LCCI President opposes import of luxury vehicles, mobile phones
Says economic policies should be exports oriented: Govt needs to focus on import substitution and diversification of exports: Country lacks equitable tax collection: Calls for arrest of fall in value of local currency: Monetary policy needs urgent reset
LCCI President Mian Nauman Kabir says high trade deficit is due to stagnation in exports and exorbitant rise in imports.
Lahore Chamber of Commerce and Industry President Mian Nauman Kabir says to control the devaluation of the rupee, the government should curtail imports of non-essential and luxury items, work on currency swap with China and focus on a concrete strategy of import substitution and enhancing exports.
In an interview with 24 Digital, Mian Kabir said the import of automotive vehicles (Completely Built Units) and mobile phones should be restricted immediately.
Pakistan imported automotive vehicles worth 368 million dollars and mobile phones worth 1.9 billion dollars during 2020-21.
To curtail dependence on foreign loans, the LCCI president underlined the need for focusing on import substitution and diversification of exports in terms of products and markets.
At present, he said, Pakistan’s textiles, rice and leather account for almost 70 percent of our exports, while there is a need to diversify them and include pharmaceuticals, engineering industry and Halal Food etc.
Mian Nauman Kabir answered a number of questions about various aspects of the national economy. Here is the text of questions and answers:
Q. The economy is going down and foreign loans are multiplying with the passage of time. What, in your opinion, has gone wrong? What are major mistakes made by the government?
Answer: The exorbitant increase in foreign loans signifies multiple problems in our economic system. According to the State Bank of Pakistan statistics, the total external debt and liabilities have crossed 127 billion dollars as of September 2021. The basic cause of the problem is that the revenue collection is considerably lower than the expenses and, as a result, the government has to resort to foreign loans. The major reasons for the exorbitant increase in foreign loans are:
1) Lack of adequate tax revenue collection which is merely around 10 percent of GDP, the lowest in the region;
2) High trade deficit due to stagnation in exports and exorbitant rise in imports. In July-November 2021, the trade deficit was around 20 billion dollars (Exports 12 billion dollars and imports 32 billion dollars);
3) Lack of stability in the exchange rate market and the massive devaluation of the rupee against the dollar have also resulted in an increase in foreign loans.
The major mistakes made in this connection have the lack of adequate focus on import substitution, diversification/value addition in exports. Furthermore, we have not been able to diversify our exports in terms of markets.
The government has not been able to put in place a taxation system that can ensure equitable tax collection from all sectors of the economy. We have also not been able to undertake effective reforms to improve the business climate which has resulted in the stagnation of foreign direct investment in Pakistan. It is worth mentioning that the net FDI in 2020-21 was merely 1.85 billion dollars.
Q: What measures should be taken to make the country self-reliant, needing no foreign loans in future?
A: Our economic policies should be export-centric. To curtail our dependence on foreign loans, we need to focus on import substitution and diversification of exports in terms of products and markets. Pakistan’s export products are heavily concentrated in a few products lines as textiles, rice and leather account for almost 70 percent of our exports. There is a need to diversify our exports, especially focusing on potential sectors like pharmaceuticals, engineering industry and Halal food etc.
There is also a need to devise an efficient tax system that can ensure equitable adequate tax collection from all the sectors of the economy i.e. agriculture, services and industry.
There is also a need for Smart Ease of Doing Business Reforms which can improve the business regulatory environment in the country and result in an increase in the inflow of foreign direct investment in the country. The net FDI in 2020-21 was merely 1.86 billion dollars.
Q: In the prevailing situation what should be done to repay the previous loans that have made the country a ‘hostage’?
A: Immediate steps should be taken to strengthen the local currency and stop further devaluation, as any depreciation in our local currency rates increases the foreign loans.
The government should also undertake negotiations with the foreign lenders through effective foreign diplomacy for rescheduling of loans.
Q: Please identify the unnecessary imports that should be stopped immediately to save the precious foreign exchange?
A: The imports which can be restricted to curtail the import bills are: Automotive Vehicles (Completely Built Units) (imports 368 million dollars in 2020-21);
Mobile phones-(imports of 1.9billion dollars in 2020-21);
Attain self-sufficiency in food to cut down on imports of sugar (imports 113 million dollars), wheat (imports 665million dollars) and pulses (imports 593million dollars)
Q: What measures do you suggest to increase exports? Also, please identify the sectors that should be addressed immediately?
A: Diversification in export products:
Pakistan’s export products are heavily concentrated in a few products lines as textiles, rice and leather account for almost 70percent of our exports. There is a need to diversify our exports, especially focusing on potential sectors like pharmaceuticals, Engineering Industry and Halal food etc. We are of the view that these potential export sectors of the economy should be completely zero-rated so that their export competitiveness can be increased.
Diversification in Export Markets:
We also believe that there is a need for collective actions for exploring new export markets as about a 65percent of Pakistan’s exports go to just 10 countries. For enhancing our exports to untapped potential markets like Africa, Russia and Central Asia etc., formal banking channels should be established on a priority basis. We have already raised this issue with the State Bank of Pakistan and the Ministry of Commerce.
Q: The rupee is going down as a result of which prices have gone beyond the reach of the common man. How far are the policies of the PTI government responsible for the slide? What should be done to avert further devaluation?
A: The main causes of devaluation have been the widening of the trade deficit (20 billion dollars in July-November 2021) and high debt payments.
To control devaluation, the government should:
Curtail imports of non-essential and luxury items; use state bank interventions to control exchange rate; work on currency swap with China; focus on a concrete strategy of import substitution and enhancing exports.
Q: Which policies of the government should be reviewed immediately?
A: The monetary policy of the government needs to be reviewed immediately. The recent hike in the policy rate which has taken the policy rate to 9.75 percent would have dire consequences on the economic growth rate. It will surely hinder the process of industrialization and private sector growth. Pakistan should bring its interest rate at par with the regional rates which are much lower (India 4percent, Bangladesh 4.75percent; China 3.85 percent and Sri Lanka 5 percent).
Q: What kind of economic situation do you visualize during the next year?
A: Unless the government takes concrete measures to control devaluation and at the same time promote import substitution and export enhancement, there is a risk of a further increase in the trade deficit. The hike in the interest rate can also adversely impact the growth of the private sector in Pakistan during the next year.
Q: How do the protests, long march/strike threats coming from opposition parties affect the economy?
A: Such activities disrupt the business activities, entire supply chain and consequently impact our domestic production and exports.