Pakistan Export Trends and Structure and Issues of Competitiveness Dr. Shamshad Akhtar Governor, State Bank of Pakistan
Macroeconomic Stability is there to Stay
Pakistan compares favorably with peer-group sovereigns 2005 Real GDP growth 8.4 3.5 4.0 4.8 5.0 5.5 5.7 6.0 Brazil (Ba3/BB) Colombia (Ba2/BB) Turkey (B1/BB-) Philippines (B1/BB-) Panama (Ba1/BB) Peru (Ba3/BB) Indonesia (B2/B+) Pakistan (B2/B+) 1 Calendarized to December year end for comparison Source: Moody s
Strong commitment to reform agenda Fiscal Responsibility & Debt Limitation Act Tax Reforms Governance Reforms Agriculture Sector Reforms Major economic reforms Fiscal Transparency Capital Market Reforms Financial Sector Reforms Industry & Investment Reforms Deregulation & Privatization
Fiscal performance is good As % of GDP 3 2 1 0-1 -2-3 -4-5 -6-7 Revenue balance Fiscal balance Primary balance FY98 *: projected FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06*
Current account deficit remains manageable Current account balance excluding official transfers (% of GDP) 6 4 2 1.9 3.8 1.4 0 (2) (4) (6) (8) (4.8) (7.2) (6.2) (3.1) (4.1) (1.6) (0.7) (1.6) (10) 1990-91 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Source: Ministry of Finance
As confidence in the economy builds, remittances from abroad have risen sharply Remittances (US$ million) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 4,237 4,168 3,871 2,390 1,087 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Source: Ministry of Finance
Foreign investment has started to recover Foreign Direct Investment (US$ million) 1800 1600 1400 1200 1000 800 600 400 200 0 1,524 949 798 485 322 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Source: Ministry of Finance
Pakistan's external debt to GDP is lower than comparables External debt¹ as a % of GDP 70 Pakistan (B2/B+) Ba1-Ba3 median B1-C median 65 60 55 50 45 40 35 30 2001 2002 2003 2004 2005 1 Calendarized to December year end for comparison Source: Moody s
Significant decline in public debt Public debt as % of GDP and Revenue Public debt as % of GDP 90 85 80 75 70 65 Public debt as % of Revenue 650 600 550 500 450 60 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 400 Source: Ministry of Finance
Inflationary pressures are easing: monetary tightening and supply measures yielding impact M2, Nominal GDP and Inflation 20 15 Growth in money supply Nominal GDP Inflation Monetary expansion casues inflation percent 10 5 0 FY94 * Projection FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06*
Trends in Private Sector Credit 500 400 300 200 100 0-100 Jul Aug Sep Oct Nov Dec Jan Feb PKRBn Mar Apr May Jun FY06 FY05 FY04 FY03 FY02
Foreign Exchange Reserves Trends 14,000.0 12,000.0 Held by SBP Held by Banks Gross FX Reserves 10,000.0 8,000.0 6,000.0 Gross FX Reserves Peaked @ $ 13,000 for 1-day on 29Apr2005 4,000.0 2,000.0-6/30/2000 12/30/2000 6/30/2001 12/30/2001 6/30/2002 12/30/2002 6/30/2003 12/30/2003 6/30/2004 12/30/2004 6/30/2005 12/30/2005
Currency stabilization and buoyant stock market Exchange rate (PKR/USD) 65 64 63 62 61 60 59 58 57 56 55 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Pakistan s Karachi Stock Exchange Index - 100 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Source: Bloomberg
Firms response to appropriate macroeconomic and trade policies in turn depends on Whether the country has comparative advantage in sectors/products Whether country has been able to eliminate/reduce anti-export bias that exist for some decades in South Asia where import substitution was nurtured across industry behind protective high tariffs Their ability to attract foreign investment and technology Whether there is appropriate overall business environment If the firms can line up right management and skill mix and technological capacities to deliver high quality product on time.
Export Trends and Shifts in Structural Composition
Composition of Exports FY00 FY05 Non- Textiles 34.8% Textiles 65.2% Non- Textiles 41.1% Textiles 58.9%
Composition of Textile Exports Yarn Fabrics Knitwear Bedwear Towels Garments Syn. Textiles Textile Made-ups Others 2,000 1,800 1,600 1,400 1,200 1,000 800 600 in million US$ 400 200 0 FY00 FY05
Knitw ear Garments Textile Made up Bed Wear FY05 FY04 FY03 Textile Exports by Categories Tow els Other Products Fabrics Yarn 9,000 8,000 7,000 6,000 5,000 4,000 3,000 million US$ 2,000 1,000 0 FY02 FY01 FY00 FY99 FY98 FY97 FY96 FY95 FY94 FY93 FY92 FY91 FY90
Composition of non-textile Exports 3000 2700 2400 2100 FY00 FY05 in million US$ 1800 1500 1200 900 600 300 0 Rice Prim ary Com. Sports Goods Leather Manuf. Surgical Ins tru. Chem icals Other Manuf.
Pakistan s Major Export Markets FY00 FY05 USA 24.8% Asia 32.3% USA 23.9% Asia 34.4% Others 13.4% EU 27.3% Others 11.6% EU 27.5% China 2.1% China 2.5%
Ease of doing business Sr. No. Country Rank 1Pakistan 60 2 India 116 3 Bangladesh 65 4 Sri Lanka 75 5 Thailand 20 6 Indonesia 115 7Iran 108 8 Philippines 113 9Turkey 93 10 Vietnam 99 Source: Doing Business in 2006, World Bank & IFC
Capacity Utilization in Large Scale Manufacturing Industries Industry Capacity Utilization Weight in LSM FY02 FY03 FY04 FY05 Jul-Sep FY06 Textiles 24.49 53.5 55.9 54.2 55.9 55.9 Spinning (spindles & rotors) 62.3 64.2 65.7 68.4 68.4 Spindles 79.1 82.0 85.4 85.6 85.6 Rotors 45.4 46.4 46.1 51.2 51.2 Weaving 44.8 47.6 42.6 43.4 43.4 Edible oil & ghee 5.56 34.7 33.0 39.9 42.0 48.6 Sugar 5.53 56.5 64.3 67.2 49.4 49.4 Automobiles 3.95 41.9 54.9 67.0 65.4 69.7 Cars, jeeps 2.53 35.5 54.5 74.7 83.9 87.0 LCVs 0.44 30.3 43.5 50.3 78.7 87.0 Motorcycles/auto rickshaws 0.14 47.3 62.6 96.3 59.0 65.9 Trucks & Buses 0.14 22.9 33.6 23.6 18.0 17.7 Tractors 0.70 73.7 80.3 90.3 87.5 90.8 Electronics 2.49 28.5 35.2 59.8 31.4 26.8 Airconditioners 0.07 1.9 6.0 32.2 29.3 19.8 Refrigrators 0.59 55.1 64.3 102.9 39.2 38.6 Deep Freezer 0.40 0.0 0.0 44.4 25.6 21.9 Cement 4.14 58.8 63.0 75.9 84.0 73.7 Steel (Pak Steel) 3.50 80.9 91.0 93.6 89.0 34.0 Industrial chemicals 0.85 66.3 80.7 88.8 90.3 91.6 Fertilizer 3.38 89.3 93.4 100.6 104.1 110.1 Petrolem refining 5.23 90.6 92.3 88.8 85.2 85.6 Paper & paper board 0.60 82.7 90.3 97.2 100.8 117.9 Overall Capacity Utilization 58.0 62.2 65.5 63.7 61.1
TFP Growth in Pakistan percent change Productivity Labor Investment (RHS) 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0 40 30 20 10 0-10 -20-30 change (YOY) 000-2.0 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 -40
Prospects for Export Growth and Diversification
Prospects for Export Growth and Diversification Pakistan Medium Term Plan and export strategy have advocated for almost doubling of export levels from nearly $18 billion in FY06 to $28.0 billion by 2010. While this is an ambitious goal it is not out of range given that in the last five years Pakistan raised export earnings by $8.6 billion and another $10 billion is not inconceivable given the rate at which economy is set to grow.
Why is our Confidence level high Foreign flows to help stimulate exports: Pakistan is expected to close the year with nondebt creating flows of close to $8 billion including FDI of $2 billion, Remittances of $4.2 billion and privatization proceeds of $2 billion Pakistan has and will continue to launch strong infrastructure development transport and communication, roads and highways, power, well-functioning ports etc. Over 48% of public investment during FY06-FY10 is directed for strengthening of the infrastructure linkages Pakistan is now entering into preferential free trade agreements Pakistan is fast developing special export zones and clusters Pakistan has a road map for further deepening reforms and addressing any policy, legal and regulatory distortions
Policy roadmap for the next five years Keeping inflation under control Maintain a flexible exchange rate regime Focus on tax administratio n reform Maintain fiscal prudence by keeping fiscal deficit low Improving social indicators Strengthening the country s infrastructur e Sustaining growth momentum 38