The Export Package is a welcome “First Aid” for the struggling export sector. First aid is indeed how it should be seen as there remain fundamental challenges confronting exports and manufacturing that still need to be addressed. Without an integrated industrial (read manufacturing) and trade (read import and export) strategy, packages such as this are only temporary solutions. There is a finite value limit of Rs. 180 Billion. The recent experience of the fertilizer subsidy which ran out of funds just six months from inception should serve as a warning.
Pakistan needs to focus on value-added exports to generate jobs and higher export earnings. The manufacturing sector in Pakistan has over many years been undermined by a liberal import regime, poorly negotiated free trade agreements, uneven playing field vs. a large informal sector that feeds off smuggling, under-invoicing and tax evasion, power outages, a crumbling infrastructure, significant disparity in input costs, especially of energy, declining agricultural productivity , an unrealistic exchange rate, and a massive circular debt on account of unpaid / delayed refunds to exporters. Only by addressing each of these factors can manufacturing in Pakistan build scale and competitiveness. Whilst subsidies help in the short run to protect market share of exports (and this is difficult to regain if lost), only a comprehensive value chain analysis and an integrated approach to address weaknesses that thwart scale and competitiveness will help Pakistan grow and sustain export earnings.
It is encouraging to see the export rebate skewed towards value-added items. It would have been logical to also focus the sales tax exemption on machinery imports that promote value addition. Nevertheless the package will give some respite to exporters. It is however important to ensure that it is implemented in a transparent manner, that rebates are paid promptly and that the remaining arrears of sales tax refunds are cleared and not forgotten.