KARACHI:

The Pakistan Bureau of Statistics states that the country’s products and services exports increased to around $38 billion in FY24 from almost $35 billion in FY23. The export of products increased by $3 billion, but the export of services stayed relatively consistent, increasing from $7.6 billion to $7.8 billion. Often praised as the second-largest source of vital export earnings, the information and communications technology (ICT) sector increased by 25% in FY24, contributing more than $600 million to the total.

But exports relating to travel fell by over 22%, and exports from the banking sector plunged by about 80%. A lesser fall of 5% was also seen in other business services, which made over $1.5 billion in contributions in FY24.

The trade deficit in services was $2.3 billion, far less than the $24 billion imbalance in products, with service sector imports amounting to $10.1 billion. The ICT-driven services sector is expected to become more and more important in producing export income, particularly as the world grows more digitally connected.

It’s critical to examine international service export trends in order to comprehend Pakistan’s situation. The top service exporter in the world, with projected exports exceeding $1 trillion in 2023, is the United States, according to data from the United Nations ESCAP’s Trade Intelligence and Negotiation Advisor (TINA) Trade in Services database. Next with $584 billion is the United Kingdom, while India, a neighbour, recorded $336 billion. In contrast, Pakistan exported services valued at $7.5 billion in 2023.

The majority of Pakistan’s exports of services are probably made via cross-border trade (Mode 1), in which foreign companies request services from Pakistani providers without having to be physically present. This emphasises how crucial telecommunications are as a means of providing services. Pakistan’s service exports increased by 6% on average between 2019 and 2023, while the nation’s proportion of the world market did not. Pakistan’s ICT sector exports, on the other hand, have grown by 20% on average every year over this time, while its global market share has only climbed by 0.25%.

In contrast, India reported over $250 billion in exports of ICT and other business services in 2023. The country’s ICT exports climbed by 14% annually, and its market share increased by 8%. India exports most of its services through cross-border trade, but with the rise in foreign direct investment (FDI) in the services sector in recent years, the relevance of foreign commercial presence in the services sector has increased.

Even though China exports fewer items than it does goods, a sizable amount of its services are provided through the involvement of international businesses. This makes it possible for China to control and limit service flows inside its borders, something that would be more challenging for smaller, unofficial businesses engaged in international trade.

The ICT industry in China has also done well, expanding at a rate of 14% a year on average between 2019 and 2023.

The General Agreement on Trade in Services (GATS) commitments made by Pakistan and India can be compared to see how different their restrictions on market access are. Though Pakistan’s structure is more open and less complicated than India’s, it still needs to make it easier for professionals and executives to enter the country in order to increase service exports. India’s GATS responsibilities cover more specialised categories such as business visitors, intra-corporate transferees, and professionals, while Pakistan’s GATS obligations centre on the temporary admission of executives and specialists.

Notwithstanding the GATS’s limitations on categories and flexibility, Pakistan’s Free Trade Agreement (FTA) with China provides coverage for professionals, business travellers, and service salespeople. In contrast to its Free Trade Agreement with China, Pakistan is bound by stricter GATS obligations. In services trade, WTO members are subject to specific commitments and obligations under GATS, just like in goods trade. Notably, Pakistan does not have certain laws and regulations governing foreign equity participation; instead, it permits it on an individual basis. It’s also critical to acknowledge that developed nations and more recent trade agreements are progressively incorporating measures to minimise the displacement of local labour, prevailing wage standards, and compliance requirements, all of which have the potential to restrict market access.

Lastly, in order to guarantee continued export growth, Pakistan must offer robust and dependable internet connectivity to its service exporters, especially freelancers and IT companies. ICT companies will be able to use more effective digital technologies and provide higher-quality services with faster and more dependable internet. Pakistan’s mean mobile broadband speed is ranked 101st out of 111 countries, and its fixed broadband speed is ranked 145th out of 162, according to the Speedtest Global Index. India’s mobile internet speed comes in at number sixteen in the globe, whereas the UAE leads the world in both medium and broadband internet speeds. ICT exporters are severely disadvantaged in Pakistan since big cities like Lahore and Karachi have low internet speeds.

To put it briefly, if Pakistan is to meet its export goal of $100 billion in the next few years, its authorities would need to give top priority to growing and marketing service exports. In addition to being vital for producing much-needed cash flow, the services sector is also vital for supplying the necessary ancillary services needed to sustain the commerce in manufactured goods.

The author is a research fellow and assistant professor of economics at the CBER Institute of Business Administration in Karachi.