Pakistan: Rising Imports, Declining Exports & Premature Deindustrialization

This publication Pakistan: Rising Imports, Declining Exports & Premature Deindustrialization prepared by the Research Unit of the Pakistan Business (PBC) should be viewed as a wake-up call for not just policy makers but for Pakistanis’ in general.

Current Account and Trade Balance deficits are both unsustainable:

The composition of Pakistan’s imports continues to be inelastic, the top 10 imports contributed nearly 69% of total imports:

Exports after hitting a peak of USD 25.34 Billion in 2011 dropped to USD 20.53 Billion in calendar year 2016. With Textiles contributing nearly 61% to exports and the Food Group another 18%, 79% of Pakistan’s exports are dangerously dependent on the weather.

Pakistan appears to be heading towards Premature Deindustrialization. With a per capita income of only $1,500; a population which is by and large unskilled and uneducated; Pakistan can ill afford to outsource its jobs especially in manufacturing.

A string of badly negotiated and poorly monitored Free Trade Agreements (FTA) has seen Pakistan run-up increasing trade deficits post-signing of FTA with its major FTA partners

GDP growth has improved but growth is driven by consumption with unsustainably low levels of investment:

With nearly 79% of exports dependent on agriculture, the sector needs support to increase productivity. Low productivity in agriculture is a major hinderance for the value-added export sectors especially in textiles:

In addition, the export sectors suffer from high input costs severely impacting their competitiveness:

Tax policy in Pakistan is skewed in favor of the undocumented sectors, manufacturing which contributes 13.5% to the GDP contributes 58% to tax collection:

There is a serious mismatch in the reporting of trade data by Pakistan and its major trading partners with trade with China being a case in point. Pakistan reported imports from China in 2016 of USD 13.68 Billion while China reported exports to Pakistan of USD 17.23 Billion – a gap of USD 3.5 Billion in 2016 alone. Not only has the Government of Pakistan lost on account of Import Duties & Sales Tax collections on imports, it has also foregone tax collection from domestic manufacturers who can no longer compete with under-invoiced imports resulting in loss of Pakistani jobs in the manufacturing sector

The PBC is a private sector not-for-profit advocacy platform set up in 2005 by 14 (now 66) of Pakistan’s largest businesses. PBC’s research based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about PBC, its members, objectives and activities can be found on its website: