ISLAMABAD: Ms Anjum Ibrahim has written an article titled "Trade Balance Worsens" that appeared in The Business Recorder on 20-02-2017. The writer contends "the difference between the Real Effective Exchange Rate (REER) and average prevailing exchange rate has widened considerably during the tenure of present government". Furthermore, the writer has also raised the question "is the yawning difference between the REER and average exchange rate have any impact on exports and imports?" as greater control over the exchange rate, "the country entered a new era where imports measured in dollars began to show higher growth rate relative to calculation in rupees".

The claim of the writer for greater control over the exchange rate is incorrect as exchange rate policy is market based. The author has tried to make a direct comparison of the real effective exchange rate (which is an index) with the value of nominal exchange rate, which is not a valid comparison and taken the exchange rate the only reason behind the current sluggish performance of exports and conveniently ignored the role of international developments. It must be noted that Pakistan's export performance largely depends upon favourable international commodity prices, and degree of global demand. Recent slowdown in global economy, particularly the subdued conditions in international trade, is impacting the exports. However, due to present government's initiatives for the promotion and facilitation of exports resulting in growth of 4.6 percent in January 2017 over January 2016 on YoY.

While talking about the impact of exchange rate changes on exports and imports, one must know the sensitivity of exports and imports to exchange rate fluctuations in Pakistan's case. This aspect is missing in the article. It seems that the author has implicitly assumed that both the exports and imports are highly sensitive to the exchange rate.

The writer also criticized the government for raising imports particularly power generating machinery as "the government is at pains to point out that total imports rose in spite of the price decline of oil and due to a rise in machinery imports".

The contention of the writer is not correct; it is true that imports are rising due to CPEC related activity but the rise in imports is not confined to power generating machinery only. Imports of construction, textile and office machinery have increased by more than 57 percent on average during Jul-Jan FY17.

The writer also mentioned that "all Preferential and Free Trade Agreements that Pakistan signed, have favoured the other country's exports".

The writer's contention is not true, in the past Pakistan has signed various free trade agreements (FTAs) and preferential trade agreements (PTAs) with various countries and Pakistan could not benefit much from such arrangements as mentioned in the article. It would have been more useful, had the writer analyzed the impact of trade agreements with various countries and across different time periods in case of Pakistan.