Macro Bite # 67

Last week’s newsletter discussed our import bill, and the misguided perception that our imports primarily consist of luxury goods. A new World Bank report confirmed this, pointing out that non-essential goods only make up about 10% of our import bill. Hence, introducing duties and other regulatory measures are unlikely to curb our import bill much. Instead, if we want to reduce our trade deficit, our focus should be on boosting our exports.

So how do we improve our export numbers? The report had some recommendations. The first was gradually reducing import tariffs so that firms focus less on a captive domestic market and instead try to increase their exports. Second, reallocating export financing from short-term working capital to longer-term capacity expansion. Thirdly, providing market intelligence services for potential exporters to help them find the right market and specifications for their products. Finally, devising long term strategies to enhance competition and innovation amongst exporters to boost their productivity.

As I noted last week though, initiating such deep-rooted structural reforms is much more difficult than simply making faux-populist statements. Whether our government has the appetite to take such steps remains to be seen.