An Export-Led Growth Strategy: Pakistan

Topics: International trade, Inflation, Economics Pages: 8 (2714 words) Published: January 17, 2011
Meekal Ahmed *
This essay makes no pretence to offer a novel concept or a new development strategy and most economists reading it will probably stifle a yawn and turn the page. Yet it is a subject worth talking about. Many countries round the world, most notably the former Asian Tigers, China, Brazil, Turkey and more recently India have followed such a strategy with great success. Pakistan has not and it is well to ask why and what we can do about it.

Pakistan has never had a consistent, coherent and well-articulated export-led growth strategy. Indeed, exports are often treated as a residual, an after-thought, once the domestic market has been filled. This is inexplicable given our persistently large trade deficit which has not been reduced over time and we have difficulty financing it (filling the gap) each year. Economic growth has at various times been driven by either the public or private sector or more recently - and most disastrously in the previous government - by consumption which created dangerous asset- price bubbles in the domestic economy, led to overheating pressures and a surge in inflation and imports. Economic growth has never been driven by exports nor has building a dynamic export sector been at the forefront of any government's economic strategy.

While the large-scale manufacturing sector in Pakistan is the focus of policy attention not least because it has a powerful lobby, it is the tip of the manufacturing (and export) sector ice-berg. It is the small and medium-enterprise manufacturing (SME) sector in Pakistan that generates four-fifths of our manufacturing output, employment and exports. Sustained and focused policy-driven growth in this sector with its strong forward and backward inter-industry linkages is the kind of -inclusive- growth that Pakistan urgently needs. With labor-input a large component of capital and output, rapid SME growth has important positive implications for wages, employment, living standards and the goal of poverty alleviation. Why Pakistan has shied away from adopting such a strategy is not clear. Of course every now and then there is much bluff and bluster about boosting exports and grand plans to contain our external deficit and debt. Since the government is busy giving "top priority" to everything, the priority that should be given to exports is drowned amid the "noise" of the many - and often contradictory - pronouncements.

Perhaps the first reason for not paying sufficient attention to the SME sector - and an incredible one at that - is that we don't know much about the SME sector despite its size and importance in the economy. We have large bureaucracies dealing with SME in all provinces but it is unclear what they do. Surveys of activity this sector are taken in -frequently, sometimes as far apart as 15 years, and a inter-survey growth rate is calculated which is then put into the National Income Accounts and repeated year-after-year until the next survey. The real growth rate of the SME sector has been fixed at as low a figure as 2.5% per annum. The present fixed rate is 7.5% per annum. But what is really happening in the SME sector in the inter-survey years no one knows except through crude methods of linear interpolation. If there is no information and just a fixed assumed growth rate with fixed and outdated coefficients for employment and capital, there can be no meaningful strategy of export- led growth in the SME sector to begin with.

The second reason could be that we don't like to talk about exchange rate policy except in whispered conspiratorial terms. Maintaining a -stable" exchange rate is always thought to be a reflection of how well economic policies are being managed. Governments frequently interfere with exchange rate management issues and demand that the exchange rate is kept -stable." An appreciating exchange rate is greeted with applause. Devaluation is always bad. Nominal “exchange rate stability” was one of...
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