PHOTO: FILE
ISLAMABAD: Pakistan recorded a trade deficit of $9.3 billion in the first four months of the ongoing fiscal year, widening 22% year-on-year and far more than official estimates, as exports failed to recover while imports kept increasing during the July-October period.
The higher-than-anticipated trade deficit, gap between exports and imports, has not rung any alarm bells in official circles yet, as the government is mum over recommendations submitted to improve the situation of the external trade sector.
Exports plunged 6.3% to stand at $6.43 billion during the four-month period, reported the Pakistan Bureau of Statistics on Thursday. In contrast, the import bill increased 8.6% to $15.8 billion in the same period. Resultantly, Pakistan posted a $9.3-billion trade deficit - higher by $1.7 billion or 22% over the corresponding period, said the national data-collecting agency.
There was one positive aspect, as exports picked up slightly in October while pace of growth in imports reduced marginally as well. However, it was not sufficient to recoup losses in terms of contraction in exports during previous months. Exports increased to $1.8 billion during October.
Govt’s estimates
For fiscal year 2016-17, the government has projected exports would grow to $24.75 billion and imports may remain at $45.2 billion. It had projected a $20.5-billion trade deficit for the entire fiscal year but the first four-month deficit has already covered 45.4% of the annual target.
The government closed the last fiscal year 2015-16 at an eight-year low level of exports, which dropped to $20.8 billion despite preferential access to European markets. The exports have been declining since the current government took over, falling from $24.5 billion in 2012-13.
The continuous decline in exports is alarming when analysed in light of other developments taking place on the external accounts front. Remittances have started shrinking while foreign direct investment is also not picking up.
Due to drying up of these important non-debt creating sources, the government has been heavily borrowings to build foreign currency reserves and meet external account requirements. During the week ending November 4, central bank’s reserves further decreased to $19 billion. The reserves are largely built by borrowing from external sources and purchasing dollars from the spot markets.
The IMF’s last report on $6.4 billion bailout programme revealed that Pakistan’s gross external financing needs would reach $10.9 billion in this fiscal year. Since the trade deficit is more than official estimates, the gross financing requirements are also likely to go up. The $10.9 billion estimated financing requirements are already $4.4 billion higher than fiscal year 2015-16 requirements.
In September this year, Prime Minister Nawaz Sharif had constituted a committee to address the issues faced by the country’s exporters within one week. However, more than two months have lapsed and the government has yet to come up with a package that may address these issues.
The sources said that the Ministry of Finance was sitting on the recommendations, as these carried financial implications for the budget.
In its assessments, the IMF has said that appreciation of Real Effective Exchange Rate (REER), security and governance challenges and power outages were the reasons behind the fall in exports. The IMF has also projected a significant rise in imports due to the China-Pakistan Economic Corridor (CPEC). It has estimated CPEC imports at 11% of the total imports in the years ahead.
Published in The Express Tribune, November 11th, 2016.
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