Pakistan to cut import duty to make exports more competitive

Pakistan plans to remove duties on many raw materials used by exporters, aiming to make them more regionally competitive and help the economy escape a recurring boom-bust cycle.

Duties on imported raw materials, which were removed on more than 1,600 products last year, will be further reduced or eliminated in this year’s budget, Abdul Razak Dawood, commerce and investment adviser to Pakistan’s prime minister, said in a interview in Karachi. Dawood also said he’s “very hopeful” the government can continue supplying discounted energy to export-based factories.

Pakistan’s economic growth is seen decelerating to 2.4% in the year through June, its weakest pace in more than a decade. World Bank data show consumption growth slowed and investment contracted last fiscal year as authorities sought to stabilize the economy after fiscal and current-account deficits and dwindling reserves resulted in a balance-of-payments crisis.

Remedial steps included Asia’s most aggressive interest-rate tightening, with the central bank more than doubling its policy rate since January 2018, to 13.25%. To contain the damage from soaring deficits, Pakistan has devalued its currency by half over the past two years and secured a $6 billion loan last year from the International Monetary Found, its 13th bailout from the lender since the 1980s.

Shipments from the South Asian nation have been largely stagnant—ranging between $20 billion-$25 billion per year—over the past decade, a time when other developing economies like Vietnam and Bangladesh have seen their export sectors thrive. The devaluation and import-duty cuts have improved Pakistan’s competitiveness, with exports expected to rise by $1.5 billion this fiscal year and next to a record $26 billion, according to Dawood, who also advised the government in a similar role from 1999-2002.

More than half of Pakistan’s exports are textiles, according to Dawood, with the industry now operating near maximum capacity. The biggest textile firms—including Interloop Ltd., Nishat Group and Sapphire Group—are looking to expand, said Dawood, founder of Lahore-based Descon Engineering Ltd.

The European Union, which takes about one-third of Pakistan’s exports, has extended favorable access to its markets for two more years, Dawood said. Pakistan’s exports to Europe grew by 30% in the two years after it received favorable access in 2014, but the pace has slowed since.

Dawood said he’s “really pushing hard” to devise a policy for local manufacturing of mobile phones. China-based Infinix Mobility, which last month became the first mobile phone assembler in Pakistan, said it will consider producing circuit boards locally if the policy is approved.

Dawood also expects a free-trade agreement with China, which took effect in January, to boost overseas shipments by at least $500 million annually.

“There is a global slowdown right now but Pakistan’s exports are showing very, very good results,” Dawood said. “I’m hoping this will be the first indicator of an upward trend.”