While Pakistan’s trade deficit is declining, exporters are avoiding repatriation of delayed proceeds to keep away from paying heavy fines to the central bank which is hurting the country’s overall exports, according to World Bank (WB) Senior Economist, Gonzalo Varela.
On Pakistan’s state of exports, he said Pakistan used to export $14 out of every $10,000 globally exported in 2001, while Vietnam used to export $23. Today, Pakistan exports $11 out of every $10,000 globally exported (25 percent less), while Vietnam exports $123 or five times more.
On the realization of #export proceeds fines 🧵 #Pakistan used to export USD14 out of 10,000 globally exported, in 2001. #Vietnam used to export 23.
Today, it exports USD11 out of 10,000 globally exported (25% less). Vietnam exports 123 (5x more!)
👇 pic.twitter.com/atBR0DdZpi— Gonzalo Varela (@gonwei) April 10, 2023
Underlining the impact of Pakistan’s reduced export numbers in terms of growth, the trade and macroeconomic researcher highlighted that Pakistan now sits at the bottom of the distribution in terms of exports/GDP.
“In this context, the fines for delays in repatriating export proceeds, though well-intentioned, act as a (steep) export penalty,” he pointed out.
Further addressing the export growth of different subsectors with services in the country, the economist remarked that Pakistan’s “merchandise exports fell with main destinations, while [it] increased to the EU”.
Varela said in his final remarks for Pakistan that policy stability may offer better export proceeds. When uncertainty is high, what firms do is wait and see, he said, adding that “Policy stability may be a better option to get firms to bring back export proceeds fast rather than fines, for which exporters may have strategies to avoid,” Varela concluded.
Pertinently, the State Bank of Pakistan (SBP) recently decided to penalize exporters over delays in bringing export proceeds. While the move is intended to encourage the timely repatriation of export proceeds critical for the country’s economic stability, the above-mentioned research suggests the move is having the opposite effect.
