Reversing trend: Balance of trade shows signs of significant improvement

Data suggests exports continue to increase while imports decline.

ISLAMABAD:

Pakistan’s trade deficit has narrowed significantly from July to November this year, on the back of a continuous fall in imports and robust growth in exports. The improving balance has, in part, also eased some pressure off the nation’s fast depleting foreign exchange reserves.

The trade deficit – a measure of by how much imports exceed exports – shrank by almost 10% to $8.2 billion in the period from July to November 2012, as against $9.1 billion in the corresponding period of the preceding fiscal year, according to the Pakistan Bureau of Statistics (PBS).

In the period under review, exports grew 7.9% year-on-year. Goods worth $10.1 billion were exported – higher by $734 million over the previous year. On the other hand, imports plunged almost 1% to $18.3 billion. The overall worth of imports was $167 million less than last year’s corresponding import bill. The latest trade figures also indicate that the International Monetary Fund’s (IMF) earlier estimates for Pakistan’s trade may not prove true. The Fund had earlier forecasted a 2.2% growth in the country’s exports and a 4.6% growth in imports.

The narrowing of the trade deficit by almost $1 billion has offset pressure on the country’s foreign currency reserves held by the State Bank of Pakistan. This relief, however, may prove temporary: the country is set to return $1.7 billion in loan repayments to the IMF in the remaining period of the current fiscal year, which experts believe will bring foreign exchange reserves under considerable pressure.

The central bank’s reserves have depleted to $8.7 billion so far this year, lower by $2.1 billion from the level in July. The IMF has warned that foreign exchange reserves have already fallen below adequate levels, and that the central bank’s reserves will deplete further to $7.3 billion by June 2013. Meanwhile, the country’s total reserves, including amounts held by commercial banks, total $13.5 billion.

The official data, released here on Wednesday, also shows that the monthly trade deficit has continued to shrink for the fourth consecutive month due to a fall in imports. The figures also suggest that exports have registered an increase over the same period of the preceding year for the third month in a row.

A yearly comparison of monthly trade figures shows that exports rose exceptionally by 23.7% year-on-year in November. The country exported $1.9 billion worth of goods, $363 million higher than exports last November, according to the PBS. Meanwhile, imports dropped by 2.4% in the previous month to $3.6 billion – $87 million less than November 2011. Resultantly, the trade deficit contracted 20.8% over the preceding year to $1.7 billion in November.

On the other hand, month-on-month trade data suggests that exports fell almost 6% in November over October this year, while imports dropped 4.8%. The overall trade deficit shrank 3.6%.

Despite this ‘improvement’ in the balance of trade, the fall in imports may also be a red flag for a slowdown in overall economic activities in the country. Independent experts say that the decline in imports, and the consequent narrowing down in the deficit, poses a challenge to policymakers who are scrambling to address imbalances in the economy.

Published in The Express Tribune, December 13^th, 2012.