ISLAMABAD: The government is expected to miss its trade target set for this fiscal year, as the trade deficit widened to $17.7 billion in 10 months, $5.5 billion higher than the annual estimate with two months still to go, due to contraction in exports and double-digit growth in imports.
The higher-than-expected trade deficit is likely to erode foreign currency reserves besides bringing rupee under pressure. The trade figures released on Thursday by the Pakistan Bureau of Statistics show that the double jeopardy in international trade for the country continues.
From July to April, the trade deficit of $17.7 billion was 45.1% higher than the gap in the corresponding period of previous year.
The trade deficit for 10 months is even higher than what the finance ministry, Planning Commission and State Bank of Pakistan have assessed for the whole year. They have projected exports of $25.8 billion and imports worth $38 billion, resulting in a deficit of $12.2 billion.
The pace of growth in imports remained constant, surging by 14.8% at $37.1 billion in July-April 2011-12 over imports in the corresponding period of previous year. It seems that imports will exceed the annual target because of a rising oil import bill.
Contrary to that, exports during the period contracted 3.5% to $19.4 billion, according to PBS. At the current pace, the export target is also likely to be missed, largely because of a drop in cotton prices in the international market and inability of exporters to add value to traditional export products.
The trade figures have also surprised the International Monetary Fund (IMF). In its latest report on Pakistan, the IMF has estimated that exports may dip 1.8% while imports can grow 9.2%. Independent experts have predicted a $19 billion trade deficit, which may be crossed.
The high trade deficit is likely to have an adverse impact on the current account deficit that will eventually lead to a drawdown in foreign currency reserves, currently standing at $16.5 billion. By taking into account the central bank’s short-term liabilities of $2.1 billion, actual reserves are less than $14.5 billion.
The IMF has assessed that Pakistan’s foreign currency reserves may drop to $12.1 billion due to deteriorating external account, which will be not enough for three months of imports.
In April, exports fell 5.3% while imports rose 15.7%, causing an unprecedented surge of 72% in trade gap over the corresponding month of previous year, according to PBS.
Exports stood at $2.24 billion, $125 million less than the shipments made in April last year. Imports grew to $3.8 billion, $510 million higher than the previous year. The trade deficit for the month widened to $1.52 billion, $635 million more than the gap in April 2011.
However, month-on-month figures depicted an interesting trend. When compared with March 2012, exports in April rose by 12% to $2.24 billion. Imports grew by 7.5% to $3.8 billion. As a result, the trade deficit slightly rose by 1.4% at $1.52 billion. In March, the gap was $1.5 billion.
Published in The Express Tribune, May 11th, 2012.