Trade gap

The Pak Banker - - FRONT PAGE -

It is a good au­gury that the trade gap is nar­row­ing. Im­ports in Septem­ber 2018 were recorded at $ 4.4 bil­lion - third month in a row for sub-$ 5 bil­lion monthly im­ports. Septem­ber im­ports were also at a 20- month low, show­ing a mar­ginal 1 per­cent year- on- year de­cline. Ex­ports on the other hand were up by 3.1 per­cent year- on- year, re­sult­ing in a 16- month low trade deficit of $ 2.7 bil­lion - con­sid­er­ably lower than an av­er­age monthly deficit of $ 3.1 bil­lion in the 12- months lead­ing to Septem­ber 2018. The slow­down in im­ports has been de­spite a con­sid­er­able surge in in­ter­na­tional crude oil prices. Some say, it is be­cause of it. Brent oil in Septem­ber 2018 was higher by 43 per­cent year- on- year, yet the im­ports did not spike. That is be­cause of the much al­tered com­po­si­tion of the im­port bill, with the ris­ing oil prices. The petroleum im­port bill was iden­ti­cal to that in Septem­ber 2017, pri­mar­ily driven by nearly 30 per­cent lesser quan­tity of crude oil im­ported.

Petroleum prices have been in­creased but they have not re­ally im­pacted the gaso­line de­mand for the mo­torists. But the ever chang­ing power gen­er­a­tion fuel mix - from FO to RLNG and coal based plants - has en­sured sig­nif­i­cantly lesser de­mand for fur­nace oil - which is re­flected in the petroleum im­port bill. Go­ing for­ward, the FO de­mand is ex­pected to con­tinue de­clin­ing - as RLNG and coal plants will con­tinue to come to full steam in the next 12 months. From the petroleum stand­point, Pak­istan stands to ben­e­fit, should oil prices re­cede from the cur­rent mul­ti­year high. The real dif­fer­ence has been made by the slow­down in ma­chin­ery im­ports, which is dom­i­nated by power gen­er­a­tion and re­lated ma­chin­ery. Ma­chin­ery im­ports at $ 701 mil­lion are at a 32- month low and sig­nif­i­cantly be­low the 12- month monthly av­er­age of near a bil­lion dol­lar. As the CPEC en­ters the se­cond stage, with most of the power projects ei­ther on­line or soon to be on­line with ma­chin­ery al­ready in place, and am­ple gen­er­a­tion ca­pac­ity, ex­pect the power re­lated ma­chin­ery im­ports to stay on the lower side.

There has been some slow­down wit­nessed in tex­tile ma­chin­ery from pre­vi­ous year, but im­proved gas avail­abil­ity at re­duced rates could turn things around for the Pun­jab based leg of the in­dus­try. Fur­ther­more, the im­ports of tele­com and elec­tri­cal ma­chin­ery have by and large stayed in­tact. While the slow­down in ma­chin­ery im­ports may last long, that on the fuel side may not. No doubt, the gen­er­a­tion mix has im­proved. But all that ma­chin­ery im­ported in the last 2 years is now be­ing put or has al­ready been put into use, and will re­quire more fuel to burn. In most cases, the fuel will be im­ported RLNG or coal - which is still cheaper than FO - but the quan­tum of petroleum im­ports may well in­crease in the months to come. This should be a re­minder for the pol­i­cy­mak­ers to ex­pe­dite work on the in­dige­nous fuel based power projects.

There is an­other as­pect to con­sider. With added im­port du­ties on a host of items, mostly non- es­sen­tial, the surge in "other" im­port cat­e­gory could be halted. The food im­ports are largely dom­i­nated by palm oil, pulses, and tea - none of which has shown any signs of slow­down in de­mand. With the IMF pro­gramme, higher in­fla­tion and aus­ter­ity drive around, the con­sump­tion pat­terns could well be tested via pur­chas­ing power lim­i­ta­tions. All in all, im­ports should not see a re­peat of FY18. Could this be backed by a de­cent surge in ex­ports? For that we will have to make short and long term plans.

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