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Govt to announce export-oriented policy with legal protection

RECORDER REPORT

KARACHI: The federal government will announce an export-oriented policy, backed by protection, covering areas in agriculture, small and medium sized industries, oil and gas and information technology, and establishing a micro-credit bank from March 31.

Finance Minister Shaukat Aziz and State Bank of Pakistan Governor Dr Ishrat Hussain unfolded this information in a recent interview with Warburg Dillon Read, financial adviser to Eurobonds and an affiliate of the brokerage house in Pakistan, Global Securities. Finance Minister Shaukat Aziz said that for the medium term, the objectives of the government were three-fold.

First, to focus on reviving growth and alleviating poverty, which are directly linked. The benefits of growth must filter to the lowest level if economic and social stability is to be achieved.

Second, to document the economy effectively and ensure strong compliance.

And, third, to improve the balance of payments position by strengthening the export base, attracting foreign direct investment and re-profiling Pakistan's debt.

Dr Ishrat said that exports could not turnaround quickly as the industry did not see any material investment during the past three or four years. And, he added, unless the country had new investment, one could not hope for a buoyant external sector.

He said that the government was aiming to keep the exchange rate competitive and ensure adequate finance for exports. In evaluating the competitiveness of the exchange rate, it needed to be borne in mind that over the past two years the rate of inflation in Pakistan declined sharply, obviating the need for as much adjustment in exchange rate as was seen in the past few years when the rate of inflation was 10-12 percent. In fact, relatively stable prices of inputs, as reflected by the level of inflation were themselves an incentive for exports.

Replying to a question Shaukat Aziz said the government was planning to have a long-term export-oriented policy, backed by legislative protection that could encourage capital flow into critical areas of investment.

"By April the government will unveil a comprehensive policy and areas identified are agriculture, small and medium sized industries, oil and gas and information technology", he said. The existing subsidies and exemptions would be honoured, "but that's that".

He said, that wide prevalence of subsidies and exemptions had not only distorted the industry fundamentals, but had also made it less competitive". A sustainable growth is not possible without poverty alleviation. For this, three major schemes are: micro-credit bank to be established by March 31: a poverty alleviation fund; and small public works project.

Regarding reserves level, Dr Ishrat said that given that the level of reserves was the outcome of the trade balance, the size of home remittances, servicing debt and other invisible, it was difficult to work out the precise level of reserves by the end of this fiscal year. But the effort of the government would be to maintain the level of foreign exchange reserves at over $1.5 billion.

Relating to reducing the import bill, the SBP governor said that tariff and tax policies usually influence the compositon of import demand. The bulk of country's imports is of essential goods, petroleum products, machinery, food, chemicals, etc.

The one area, Dr Ishrat pointed out, was that the country could make reduction was of food related items where import substitution in items like wheat and oilseeds could lead to significant reductions. Other categories, however, are directly linked with industrial growth and there is not much room for reduction.

Shaukat said that prudential regulations are stringent indeed and provide a sound framework for the system to operate. However, the bad debt problem lies with the four nationalised banks, and that has mainly been a function of political influence in the past.

The government's intention is to establish a "Corporate and Industrial Restructuring Corporation" (CIRC), which will take the bad debts from the banks and clean their balance sheets. The CIRC will also dovetail into the strategy for promoting the small and medium sized businesses. Units will be sold to promising candidates with sound credentials, he said.