More than two-thirds of the $1.7 billion increase in textile exports from July to November 2021 is due to an increase in global prices. In other words, had international prices remained the same from last year, the dollar value of textile exports would have only climbed by 7.8 percent.
The Economic Advisory Group (EAG), in its report titled ‘New Vision for Economic Transformation’, has asserted that the rise in textile exports during the first half of the fiscal year 2022 rose due to high international prices and currency devaluation.
Overall, EAG analyzed the factors that drove the increase in exports in recent years. The report findings reveal that variations in the actual effective exchange rate explain the majority of the slowdown in export volume between 2015 and 2018 and the subsequent growth since 2018.
Changes in global economic conditions have also had an impact on the volume of exports. For example, during COVID-19, a reduction in global economic activity resulted in a 25 percent drop in exports compared to the trend (blue bars below). However, since then, the global economic recovery has had a beneficial impact on Pakistan’s export performance throughout most of the financial year.
The favorable exchange rate regime, in particular, not only reversed the detrimental effects of exorbitant exchange rates between 2015 and 2018 but also aided in further stimulating them by roughly 5-10 percent relative to the trend.
The data also highlights the favorable exchange rates and the world demand account, with government subsidies having a negligible or minor impact on export volumes. These findings cast doubt on the value of government subsidies to industries in order to enhance exports.
In light of these findings, the Group urges the government to reconsider the incentives it has provided to these industries. It also stresses the need for the government to review its sectoral policies with the goal of rewarding innovators, improving land use within cities, negotiating market access to international markets, mainstreaming vocational training, and simplifying the tax code rather than picking winners.
Source: Pro Pakistani