Published On: Thu, Dec 7th, 2017

Better late than never

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Better late than never. It is good to see that PM Abbasi has become conscious of the export sector woes and his latest directives to the Ministry of Commerce and Textiles to formulate a set of recommendations in consultation with the stakeholders designed to facilitate our largest export sector, notably the textile sector is a welcome augury. The measures¬† in the textile package reflect the serious challenges facing the current account that include a widening trade deficit and declining foreign exchange reserves – reserves that were debt-enhancing supported by loans from multilateral development finance institutions which shrank dramatically after the end of the International Monetary Fund’s Extended Fund Facility in September 2016 due to a trust deficit that the government would continue on the path to economic reforms that were agreed with the Fund.

Additionally, remittances, though registering a modest increase in recent months, are unlikely to reach the levels of past years due to the continued recession in the Middle East. These are some rather disturbing factors that finally compelled the government to focus on generating foreign exchange revenue from desired sources defined as earnings rather than from borrowing. Reports suggest that the list of suggestions by the textile associations are exhaustive and maybe a challenge for the government to implement given that any fiscal and/or monetary incentive given to the textile sector would have negative implications on the government’s revenue collection capacity which, in turn, would compromise the budget deficit target.

In this context, one must view the demand of the textile association to allow zero rating on packing material and withdrawal of customs duty and sales tax on cotton that was a component of the January package but was later withdrawn. The long standing demand of all exporters with respect to the inordinate delays in the payment of sales tax refunds and rebates by the Federal Board of Revenue has been an unwritten policy that all administrations have tacitly supported with the objective of showing revenue collections that are much higher than is in fact the case.

Repeated demands and repeated directives by the country’s chief executives, including Nawaz Sharif and now Shahid Khaqan Abbasi, have not produced the desired results. While one can fully support this recommendation made yet again by a section of exporters yet given that the country is likely to experience a budget deficit close to what it inherited in 2013, around 8 percent, due to this being an election year it is doubtful if this proposal would be implemented. However, the textile association’s recommendation to implement a uniform price for natural gas and LNG would imply either: (i) a constitutional amendment that would no longer allow first priority to the province where the gas wellhead is located which, in effect, has implied that the domestic gas available to Sindh and Khyber Pakhtunkhwa is much cheaper than the LNG available to the industrialists of Punjab – a proposal that is unlikely to generate a two-third parliamentary support; or (ii) give a heavy subsidy on LNG to industrialists in Punjab which again may not be economically or indeed politically viable. Thus with respect to this recommendation, it is clear that the government may find that its hands are tied though one would hope that it learns a valuable lesson from this notably that the availability of a new fuel source is not enough to appease the consumers, the price at which it is available is also a critical factor, indeed.


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