Trade deficit shrinks by 40.68pc YoY in Dec

Pakistan's trade deficit stood at $2.857 billion in December, shrinking 40.68 per cent year-on-year, data released by the Pakistan Bureau of Statistics (PBS) showed. In December 2021, the deficit had clocked in at $4.816bn. The lower figure was mainly on account of a decrease in imports, which amounted to $5.161bn - declining 31.91pc from last December's $7.58bn.

Imports have plunged primarily because of restrictions imposed since May by the State Bank of Pakistan (SBP) in order to reduce dollar outflows to protect the country's declining foreign exchange reserves as well as stem the rupee's freefall. Import restrictions were in place even on items required as raw material for exports.

As a result, exports also declined last month. PBS data showed that exports in December totalled $2.304bn, a decrease of 16.64pc from last year's $2.764bn. Eventually, the central bank removed these curbs in the new year, on Jan 2, as the economic situation began worsening with several companies suspending operations, citing inventory shortages due to import delays. A circular issued by the SBP in December 2022, stated that the central bank had decided to withdraw its instructions with effect from Jan 2, 2023, paving the way for acceptance of requests for import transactions already submitted to the SBP.

Earlier, under circulars issued in May and July last year, the authorised dealers (banks) were required to seek permission from the SBP's Foreign Exchange Operations Department before initiating any import transaction.

Though the main hurdle in the way of imports is the country's poor foreign exchange that still persists, the State Bank came out to facilitate the economy heading fast to hit rock bottom. These restrictions were removed, but the central bank asked banks to prioritise items for imports under a list given by the SBP. Import of essential items such as food (wheat, edible oil, etc.), and pharmaceutical (raw material, life-saving/essential medicines), surgical instruments (stents, etc.) were allowed under the new circular. These sectors are under serious stress and shortage of medicines like life-saving drugs is common.

On a month-on-month basis, the trade deficit increased by 2.36pc. This was due to a decline of 3.64pc in exports while imports also increased marginally by 0.41pc. PBS data showed that the trade deficit narrowed by 32.65pc in the first half of the current fiscal year compared to July-Dec 2021.