While there’s little surprise in the government’s failure to enhance tax earnings in the year just ended, there is still reason to rejoice – the 10 per cent year-on-year rise in exports in the last five months. Optimism must still be greeted with caution, since the economy stood devastated by floods at the same time last year, and a quantum jump in the corresponding period, while appreciated, might not be as intrinsic as portrayed by the numbers.
There are good and bad points in both findings. The tax debate lay at the centre of the decision to abandon the IMF standby agreement. Unable to build consensus on tax reforms the Fund dubbed crucial for sustaining the arrangement, the government wrongly banked on macroeconomic stability to stimulate growth. Now, with the IMF gone, and US aid held hostage to political/security developments, other multi- and bi-lateral donors have also backed off from providing fiscal support to Pakistan’s economy. And with tax reforms nowhere in sight, and the Rs300-400 PSE drain going nowhere in election-time, exports must strengthen to relieve the intense fiscal choke hold on the centre.
This is where the country’s finance machinery should concentrate most of its energies, while not foregoing tax initiatives, of course. The trade development authority is visibly posturing towards diversifying target markets, which is central to a proactive export strategy in a fast-changing international environment. Our traditional export markets are severely compromised, and European and other cross-Atlantic sales will not provide sustainable momentum going forward. The key lies in regional expansion, followed by a more diverse modification.
It is also essential to reinvent our export base. The current mix is insufficient, especially with the cotton price jump in the international market no longer present. If the good news of the 10 per cent increase in earning is not followed by better regional penetration and incorporation of value addition, it too will fizzle out sooner rather than later.