Pakistan Targets First Export Jump in Four Years on Tax Breaks

27.11.2017

Pakistan’s government is targeting a 10 percent jump in exports this financial year after giving tax breaks to businesses, in a bid to reverse a three year slump and ease its widening trade and current account deficits.

Imports will also drop as much as $2 billion after additional levies were imposed on more than 700 “luxury” goods, including cars and nail polish this month, Mohammad Younus Dagha, secretary at the Commerce Ministry, said in an interview. Pakistan also announced a package of 180 billion rupees ($1.7 billion) in February that gives tax breaks to exporters and incentives for them to enter new markets.

The new incentives may make Pakistani goods more competitive to the Chinese, who are the largest investors and contributors to Pakistan’s trade deficit. As China finances more than $55 billion of infrastructure projects across Pakistan as part of its Belt and Road trade route initiative, the South Asian nation’s import bill has increased and foreign reserves have dwindled before elections next year as it brings in more machinery and goods. That’s combined with a drop in its exports in the last financial year to the lowest in seven.

“We are now in a phase every developing country has to pass when you have to suddenly import a lot of machinery, equipment for your growing economy,’’ Dagha said. “This is the period we have to negotiate in a way that it doesn’t hurt the economy as far as the external sector is concerned.’’

There are some signs for optimism. The central bank’s Deputy Governor Jameel Ahmad this month at the Bloomberg Pakistan Economic Forum in Karachi said that the decline in exports, such as textiles which contribute more than half of the nation’s shipments, had “bottomed out” -- pointing to a 11 percent rise to $5.2 billion in the quarter through September.

The nation’s cement, steel, electronics and automobile industries are expanding as interest rates have been held at their lowest in more than four decades. Fertilizer and sugar companies are also producing a surplus that will be exported this year, according to Dagha.

Meanwhile, China has agreed to accommodate 70 products, including commodities, on further tariff concessions from Pakistan with a meeting expected next month or January to finalize this, Dagha said. Pakistan also expects to finalize a revised trade agreement with Indonesia by year-end, he said.

Dhaga expects the next phase of Chinese investment in special economic zones in Pakistan can help reduce the trade gap. Land has been acquired for seven of nine such areas, according to Islamabad-based Policy Research Institute of Market Economy.

Dagha moved to the commerce ministry as the top bureaucrat in April from the power ministry, where he helped Pakistan close contracts with China in a bid to end the nation’s daily power outages. He has blocked a move to import tomatoes from arch-rival India and last week organized an event with 900 foreigners to highlight the growing sectors of the economy.

“Without branding it’s difficult to sell your product,’’ he said after greeting U.S. Consul General Grace Shelton at the event which included a fashion show, fireworks and a video showing the China-operated port at Gwadar.


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