KARACHI: The economic situation in Pakistan is at an all-time low. As a result of the recent inflow of cash from China, the State Bank of Pakistan’s (SBP) foreign exchange reserves are now hovering around the $4 billion mark.
According to the SBP, the current account deficit was $500 million in February 2022 and $17.4 billion in FY22. In February 2023, this dropped to $74 million. Following this, the current account deficit recorded for the first eight months of FY23 is approximately one-third of the amount reported for the prior fiscal year. Both export payments and receipts have decreased, with import payments dropping more quickly. In addition to the several efforts the government has taken to restrict imports, such as delaying the issue of letters of credit (LCs) for importers, the reduction in imports is also probably related to the decline in economic activity.
Similarly, exporters have also mentioned difficulties brought on by import input shortages and a decline in manufacturing capacity utilization. Several concerns have arisen, particularly on the balance of payments (BoP) front, due to the unpredictability of the economic environment and the government’s incapacity to address the problems. At the same time, it delays its agreement with the International Monetary Fund (IMF).
According to information provided by the Pakistan Bureau of Statistics (PBS), the value of commodities exported during the first eight months of FY23 is 9% less than that recorded during FY22. Pakistan is experiencing a new BoP crisis, which has worsened the economic situation. The rise of exporting information and communication technologies (ICT) services in recent years was one bright spot.
ITC’s Trademap.org statistics show that in 2021, exports of ICT services totaled $2.45 billion. It had never before surpassed the $2 billion threshold. In 2017, it went above $1 billion. Due to enormous expenditures made in the industry, exports have increased by more than a factor of five during the past five years.
Pakistan exported $6.5 billion worth of services in total in 2021. In 2021, service imports were estimated to be $9.8 billion, resulting in a $3.3 billion deficit in services trade. It’s interesting to note that the deficit in 2017 and 2018 was over $5.4 billion, with travel and transportation services being a significant contributor.
IT services showed a surplus of more than $600 million in 2021, making their contribution just as significant as that caused by exporters of leather goods. The necessity of the IT industry in generating Pakistan’s required foreign exchange earnings has been demonstrated in recent years. This industry can help the country break free from the vicious BoP crisis cycle.
It’s important to have easier access to technology like computer hardware, software, and mobile phones to develop a sustainable ICT industry. These investments should also be made in relevant education and training facilities and enormous investments in communication infrastructure.
According to the International Telecommunication Union’s 2022 publication of the Digital Development Dashboard, 33% of Pakistan’s population has access to the internet at home, while 12% of households have a computer at home. 82 out of 100 people are subscribers to a mobile network, making up around 46% of the total population. Almost three million people use fixed broadband, with the majority of them connecting at rates between 2 and 10 Mbit/s.
In contrast, 11% of Indian families have a computer, and 24% of the population has access to the internet at home. Although there are roughly 27.5 million fixed broadband customers in India, more than 90% of them access it at a speed of at least 10 Mbit/s. Pakistan has to raise the caliber of its fixed broadband infrastructure in light of India’s success as a significant ICT exporter. Although Pakistan has one of the lowest US dollars for internet connection across various mediums, the fixed broadband basket of 5GB is one of the highest in terms of GNI per capita.
In Pakistan, a fixed 5GB broadband basket costs roughly 15.7% of GNI, compared to 3.3% in India. The cost of fixed broadband in Pakistan is far higher than the 2% affordability objective, making providing high-speed internet to families costly. According to the Digital Trade Restrictiveness Index, which the European Centre for International Political Economy (ECIPE) issued in 2018, Pakistan has the highest import tariffs on ICT products.
Compared to 3.3% in India, a 5GB fixed broadband basket represents around 15.7% of Pakistan’s GNI. High-speed internet access for families is costly in Pakistan since the cost of fixed broadband is significantly more than the 2% affordability objective. Pakistan is one of the most restrictive economies regarding the applicable tariffs on the imports of ICT goods, according to the Digital Trade Restrictiveness Index issued by the European Centre for International Political Economy (ECIPE) in 2018.
The World Trade Organization’s (WTO) Information Technology Agreement is likewise not ratified by Pakistan. For certain electronic items to be admitted, MFN-based customs taxes must be removed. It’s interesting to note that Pakistan is among the nations with the fewest limitations for foreign investment in the ICT industry. Yet, protectionist import regulations on electronic items will not likely attract efficient foreign investment in this industry.
Moreover, Pakistan has set restrictions on content moderation, data security, and localization that might be too onerous for potential investors, discouraging new investments in the industry. For instance, in recent years, authorities have repeatedly prohibited a popular platform, which signals to investors that there aren’t any clear or open regulations.
In essence, there are considerable advantages to be had from the growth of the IT industry. Exports have increased recently, highlighting their importance to the economy, particularly while Pakistan faces significant difficulties on the international economic front. The government must promote investment by helping ICT businesses reach their full potential.
