Trade deficit

The Pak Banker - - FRONT PAGE -

Pak­istan's trade deficit is widen­ing with each pass­ing month. It is now near $30 bil­lion in just ten months, which is higher than even re­vised es­ti­mates de­spite growth in ex­ports for the sec­ond month in a row. Pak­istan ex­ported goods worth $2.13 bil­lion in April, a year-on-year in­crease of 18.7%, ac­cord­ing to the Min­istry of Com­merce. The growth in ex­ports came on the back of tax in­cen­tives and ru­pee de­val­u­a­tion. Com­par­a­tive fig­ures show that Pak­istan is now 8th in the world in terms of ex­port growth, com­ing up from 158 in 2016-17, and it is hoped that the growth mo­men­tum will con­tinue in the next two months of the fis­cal year.

Ex­ports in July-April were up by 13.7% to $19.2 bil­lion, equal to 84% of the an­nual ex­port tar­get of $23.1 bil­lion. This sug­gests that the govern­ment may at last achieve its an­nual ex­port tar­get dur­ing its last year in power. In ab­so­lute terms, ex­port re­ceipts were up by $2.3 bil­lion dur­ing the first ten months. The Min­istry of Com­merce cred­ited the Prime Min­is­ter's ex­port pack­age for strong growth in ex­ports. The PM's in­cen­tive pack­age is go­ing to end in June this year and so far, au­thor­i­ties have not taken a de­ci­sion whether to ex­tend it. The tex­tile sec­tor is in favour of fur­ther ex­tend­ing the pack­age aimed at con­sol­i­dat­ing the gains. The over 10% de­val­u­a­tion of the ru­pee against the US dol­lar is also ex­pected to give a ma­jor boost to ex­ports in the com­ing months.

But the down­side is that the in­crease in ex­ports has been greatly out­paced by soar­ing im­ports. The value of im­ports stood at $49.5 bil­lon, which was 14.1% or $6.1 bil­lion higher than the im­port bill booked dur­ing the first ten months of the last fis­cal year. The ten-month im­port bill ex­ceeded the govern­ment's orig­i­nal es­ti­mates of $48.8 bil­lion im­ports in this fis­cal year. Now, it has re­vised the es­ti­mates to $54.2 bil­lion for the out­go­ing fis­cal year. The trade deficit thus widened 14.3% year-on-year to $29.8 bil­lion in the cu­mu­la­tive ten-month pe­riod (July-April), sur­pass­ing the re­vised es­ti­mated deficit for the en­tire fis­cal year. Against the orig­i­nal trade deficit es­ti­mate of $25.7 bil­lion, the Min­istry of Fi­nance had es­ti­mated that the deficit could swell to $29.4 bil­lion for fis­cal year 2017-18 due to higher im­ports.

Need­less to say, the higher-than-of­fi­cially-pro­jected trade deficit in just ten months will have ad­verse im­pli­ca­tions for both the cur­rent ac­count deficit and for­eign cur­rency re­serves. The trade deficit stood close to $3 bil­lion in April 2018. The $3-bil­lion trade deficit was 6% or $187 mil­lion less than the pre­vi­ous year. For­eign cur­rency re­serves are hov­er­ing in the tra­jec­tory of $11 bil­lion de­spite com­mer­cial loans from China. The higher trade deficit is on an al­ready higher base, as Pak­istan had closed the last fis­cal year at a record $32.4-bil­lion deficit. Pak­istan is ex­pected to book a cur­rent ac­count deficit of around $16 bil­lion dur­ing the cur­rent fis­cal year 2017-18 against the govern­ment's tar­get of $9 bil­lion.

For­eign re­mit­tances are grow­ing de­spite ap­pre­hen­sions of a slow­down due to eco­nomic and so­cial con­di­tions in the Gulf coun­tries. This will par­tially off­set the im­pact of grow­ing trade deficit on the ex­ter­nal ac­count. Dur­ing the first ten months, for­eign re­mit­tances amounted to $16.3 bil­lion, reg­is­ter­ing al­most 4% growth. On a yearon-year ba­sis, Pak­istan's ex­ports grew to $2.13 bil­lion in April over the same month of the pre­vi­ous fis­cal year, ac­cord­ing to the Min­istry of Com­merce. It seems more ef­forts are needed to push ex­ports while fur­ther cur­tail­ing im­ports.

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