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Economy in perspective.

Economy in Perspective

Export and Import

Pakistan hopes to earn over 2.4 billion dollars by exporting cotton, yarn, textiles and garments in fiscal 1990-91 in an attempt to reduce the three billion dollars trade deficit, accentuated by higher oil imports and reduced remittances from Kuwait and Iraq. The resurging exports of cotton and cotton products had promised to reduce the trade gap from last year 2.1 billion dollars to 1.6 billion dollars in fiscal 1991. Total imports were projected seven billion dollars, while exports expected to rise to 5.4 billion dollars this year from 4.6 billion dollars in July 1989 - June-1990.

The Gulf crisis, caused by Iraqi occupation of Kuwait, is expected to increase Pakistan's oil imports bill by one billion dollars with another 500 million dollars lost in exports and home remittances from Pakistani expatriates in Kuwait and Iraq. So, the total imports in current fiscal are estimated to be around eight billion dollars, while exports would be in the range of five billion dollars, leaving a gap of three billion dollars. As the caretaker Government has for the time being decided not to increase the domestic prices of petrol, a major effect has been launched to maximise the production and export of cotton, yarn, fabrics, readymade garments, and other value-added products such as hosiery, towels, bed-sheets and table cloth.

To boost the sale of Pakistani textiles abroad, the export policy has provided incentives for setting up export oriented industries. Exports are being encouraged through procedural simplification and institutional support for the value added cotton products. The range of exports covers more than 40 items. There are more than 200 registered exporters of garments in Pakistan. Pakistani fashion garments are in big demand in the United States, Britain, Germany, France, Italy, Netherlands, Japan, Australia and the Soviet Union. Pakistan earned about 388 million dollars by exporting fashion garments last fiscal year ending June 1990, according to official figures. The main competitors in this field are South Korea, Hong Kong, Taiwan, India, Singapore, Philippines and Bangladesh. With a vigorous campaign to sell readymade garments abroad, Pakistan hopes to earn 450 million dollars this year (1990-91) as against 388 million last year.

On the import side, sharp decline is expected in the import of wheat, tea and petroleum products. In 1990-91, wheat import would be lower by 52 per cent, while import of tea and petroleum products is expected to fall by 3.2 per cent and 4.1 per cent respectively. Any gain from the decline in import of these items would be offset by a 35.3 per cent increase anticipated in fertilizers import, 10.3 per cent increase expected in crude petroleum import and 7 per cent rise projected in edible oils import. Capital goods import is expected to increase by 3.3 per cent in 1990-91.

Export during July-June, 1989-90 totalled Rs. 104,121 million (provisional) as against Rs. 90,183 million during the corresponding period of last year showing an increase of 4.0 per cent. Import during July-June, 1989-90 totalled Rs. 145,721 million (provisional) as against Rs. 135,841 million during the corresponding period of last year showing an increase of 7.3 per cent. In terms of dollar the imports during July-June, 1989-90 totalled ($7,034 million) showing a decrease of 3.4 per cent. Trade deficit has recorded a declining trend from Rs. 45,658 million in 1988-89 to Rs. 41,600 million in 1989-90. The deficit may widen in 1990-91 due to conflict between Iraq and Kuwait and increase in oil price to $34 per barrel.

Home Remittances

Pakistan is likely to face serious problem of foreign exchange due to Gulf crisis. Several Pakistanis have been rendered homeless in Kuwait and they have returned to Pakistan. Apart from Kuwait and Iraq, a large number of Pakistanis are also returning from Saudi Arabia, Oman, Jordan and UAE. The crisis is not likely to end in the near future even if tension is reduced. The American military build-up will remain. In such a situation, the entire complexion of the Gulf region is likely to undergo a drastic change, leaving little room for a peaceful working environment.

Bankers and independent economists have been openly expressing the fear of a real crisis in Pakistan, once these expatriates start to pour back in large numbers. Already, the exodus from Kuwait and Iraq has put a big dent in Pakistan's remittances from these two countries. And if the trend of expatriates returning picks up, the drop in remittances may create a very serious problem.

Lately, there has been a downward trend in the income from remittances, particularly from the Middle East, and the government has been trying to cover shortfalls in foreign exchange earnings through other sources. But the crisis in the Gulf drastically affects the economy, especially if it compels people to leave their jobs and return home. The return of expatriates is not going to affect the economy alone. It will have an extremely big impact on society in general. Even now, the few thousand people who have returned from Kuwait will not only face the problem of finding accommodation and employment, but may even have problems with social integration. Social scientists are alarmed at the idea of over two million Pakistanis, compelled to leave the Gulf countries and return home. Government planners, meanwhile, are hoping and praying that tension subsidies before it engulfs the whole of the Middle East and creates even more waves of social upheaval in Pakistan.


Target for Industrial growth for 1990-91 stood at 7.7 per cent as against 7.9 per cent actual growth in 1989-90. Production trend for the first nine months reveals a recovery in the production of cotton, cloth, vegetable ghee, cigarettes, paper and chip board, pig iron and billet from the negative growth witnessed in the corresponding period of last year. Production of cotton yarn nearly double din the first nine months of 1989-90. Production of sugar and cement also showed good gains. Pakistan Steel recorded a spectacular recovery as its production jumped from 45 per cent in August to 73.6 per cent in September. Production has gone up form 41,600 tonnes to 67,000 tonnes.

As many as 38 Textile units would go into production in 1990-91 as compared to 39 during 1989-90. The number of spindles would be increased from 5.345 million to 5.927 million spindles. At the same time number of installed rotors would be increased form 71,628 to 72,780. To cost the sales of engineering goods industry an expert working group suggested the following proposals:

a) The Industry should be allowed to import raw materials and components at a flat rate of 10 per cent. Customs Duty, Iqra and Surcharge and Sales Tax all put together.

b) As an incentive to the heavy engineering industry special raw material import switch nil duty may be allowed against foreign exchange earned through export by these units.

c) Heavy Industry has a longer production cycle and hence its financial costs are comparatively much higher as compared to engineering units involved in volume production. In order to reduce the financial costs and also to help it out of its endemic cash-flow problem financing for export purposes should be provided to heavy engineering units at more concessional terms i.e. 3 per cent with a 18-24 month cycle.
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Title Annotation:Pakistan's economic conditions and forecasts
Author:Haidari, Iqbal
Publication:Economic Review
Date:Oct 1, 1990
Previous Article:Islamic management of economy.
Next Article:Money and the value of the Pakistani rupee.

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