Pakistan should enhance productivity in the export sector by focusing on provisioning credit for technology adoption for exporters, and reducing effective rates of protection, according to World Bank Senior Economist, Gonzalo Varela.
The trade and macroeconomic researcher suggests that Pakistan’s widening trade deficit is due to stagnant exports. He said that in order to tackle the conundrum of a spiraling trade deficit, fiscal policies should be directed towards improving exports by offering the right incentives to local entities.
Under the World Bank’s latest subject of the ‘Pakistan Development Update’, Gonzalo Varela said that tackling the trade deficit requires stronger and fast-growing exports.
“Exports in Pakistan are not strong, and there are two issues that are happening – One is related to entry rates into export markets. What you see is that not many firms enter export markets, not many firms become exporters”, he said.
Varela mentioned how exporter entry rate is 21 percent in Pakistan, which compares poorly with the likes of Bangladesh which is at 24 percent. Pakistan also compares poorly with East-Asia Pacific countries that are very well integrated and boast an entry rate of about 40 percent.
The second element that Varela mentioned is that Pakistani exporters are small, who on average export about $1.4 million worth of products abroad, whereas the Bangladeshi exporters typically manage to earn over 2.5 times that amount ($3.8 million).
Varela highlighted low productivity as a major reason that firms do not get into the export sector.
How Can Pakistan Increase Productivity?
The World Bank economist proposed two measures for stronger and fast-growing exports. He highlighted that Pakistan is the second most protected economy in the world and recommended gradually reducing the high effective rates of protection. Varela said that the current high effective rates reduce the incentive to export and innovate.
He also stressed the need to ensure credit availability to firms for technology adoption.
Stronger & fast-growing #exports are very important for #Pakistan’s growth. But how do we improve #productivity? (1) Gradually reduce effective protection; (2) Get more credit available for #technology adoption for exporters. Our Senior Economist, Gonzalo Varela @gonwei explains: pic.twitter.com/bkHmCqwA0E
— Najy Benhassine (@WBPakistanCD) December 3, 2021
Varela concluded his proposition by saying, “More credit and less protection will boost competition. More competition will boost productivity, and more productivity will boost exports”.
