Pakistan experienced a significant setback in remittances and exports during the previous fiscal year, resulting in an $8.3 billion loss. The government’s focus on appeasing the International Monetary Fund (IMF) neglected the importance of these inflows, leading to a larger loss compared to the IMF borrowings. Declining remittances and falling exports have been major contributors to this economic challenge, necessitating immediate attention and strategic reforms.
The coalition government’s decision to prioritize appeasing the International Monetary Fund (IMF) for a $1.2 billion tranche approach resulted in a neglect of the crucial inflows, causing Pakistan to lose far more than it gained from IMF loans and other sources. In exchange for a nine-month $3 billion loan package for FY24, the government burdened its citizens with a substantial tax load, historically high-interest rates, and record levels of inflation and currency depreciation during FY23.
Remittances declined by 13.6%, amounting to $27.024 billion compared to $31.278 billion in FY22, translating to a loss of $4.252 billion. Interest-free inflows also dwindled as the government remained focused on IMF financing. Inflows from overseas Pakistanis even fell below the $29.449 billion received in FY21, despite a record increase of $6.317 billion from the $23.132 billion in FY20. This decline occurred despite over a million Pakistanis leaving the country for employment, mainly in the Middle East. The growth trajectory of remittances was lost in FY23 due to the political and economic crisis that dominated the fiscal year, creating uncertainties for all stakeholders, including overseas Pakistanis.
Simultaneously, exports began to decline, ultimately experiencing a 12.7% drop to $27.74 billion compared to $31.78 billion in the previous year, resulting in a net loss of $4.04 billion. During the first 10 months of FY23, Pakistan’s exports decreased by 12%. To achieve long-term results, substantial efforts must be made in the short term. To become an export hub, Pakistan needs to position itself as a trans-shipping destination. However, the country’s fleet and ports are inadequate in number and quality to fulfill this role. Therefore, it is crucial for the government to prioritize capacity building in these areas.
Furthermore, there is a need to shift from exporting surplus production to targeted production for goods and services that are intended for export. Unfortunately, Pakistan has only seriously undertaken an export-market-hunting exercise during General Musharraf’s presidency, emphasizing the failure of elected governments to address this matter. One example is the untapped potential of the fast-growing halal meat business in Europe. Pakistan is unable to benefit from it due to its failure to meet European safety standards. The EU demands pedigree meat to ensure the absence of disorders like foot and mouth disease. Without the necessary certifications for export, having surplus halal meat is of no value. Similarly, the processed meat trade requires specific certifications to have any commercial significance.
The issue highlights the importance of not just having skilled labor but also ensuring proper certification to generate export revenue. Achieving this goal does not require foreign loans or grants; rather, it necessitates political will to implement formal programs through relevant ministries to enhance the value of the skilled labor force and increase the country’s revenue. By making intelligent decisions and moving in the right direction, Pakistan can not only increase its exports and earnings but also export more skilled labor, thereby boosting remittances, which are a crucial component of the country’s current account.
The special economic zones (SEZs) established as part of the China-Pakistan Economic Corridor (CPEC) have made little progress due to the government’s inaction and paralysis. Instead, land prices around these areas have skyrocketed, making them unaffordable for the average citizen. There are already numerous areas for improvement that can be addressed promptly.
Pakistan has long struggled with the prospect of default because it has never been able to export enough to sustain itself, resulting in the accumulation of loans that must now be repaid with significant interest. While all political parties make grand promises about exports during election campaigns, little has been done thus far. Even a historic depreciation of the rupee failed to provide a substantial boost. Therefore, it is undeniable that Pakistan’s export policy needs a complete reset. This reset must encompass everything from production to shipping, including strategic diplomacy. Only then can Pakistan take its initial steps toward achieving the government’s vision of becoming an export hub.
To overcome the economic crisis caused by declining remittances and exports, Pakistan must undertake comprehensive reforms. This involves shifting from surplus production to targeted production for export, enhancing certification standards for industries like halal meat, and prioritizing capacity building in transportation and trade infrastructure. By resetting the export policy and adopting a holistic approach, Pakistan can realize its vision of becoming an export hub, fostering economic growth and stability for the country.
By undertaking reforms, Pakistan can unlock its potential as an export hub, bolstering economic growth and ensuring a stable future for the nation.