External balance: New fiscal year begins with trade deficit widening 18%

Exports plunge 7% while imports grew 6.2% in July

ISLAMABAD: Concerns over Pakistan’s external trade statistics were renewed as exports plunged 7% in the first month of the new fiscal year alone while imports continued to grow, worsening the deficit situation.

Receipts from exports slipped below $1.5 billion in July - a decrease of 6.9% or $109 million from the comparative period of the previous year, according to figures released by the Pakistan Bureau of Statistics Wednesday.

As against contraction in exports, imports saw a growth of 6.2% as payments against goods increased to $3.6 billion - $209 million more than payments made in July last year.

Resultantly, the trade deficit for July 2016 widened 18% to $2.1 billion. The deficit was $318 million more than posted in the first month of the previous fiscal year.

The negative growth in exports highlights the difficulties the country may have to face in balancing external accounts in the longer run. While the short-term outlook remains stable, the widening trade deficit is alarming if it persists for a longer period of time.

Imports are expected to grow due to the China Pakistan Economic Corridor, while remittances are also likely to fall in the coming months.

DESIGN: NABEEL AHMED

Past issues

The government closed the last fiscal year 2015-16 at an eight-year low. Its exports dropped to an eight-year low of $20.8 billion despite preferential access to European markets. Exports have been declining since 2013, falling from $24.5 billion in 2012-13, due to a number of factors.

Exporters have been complaining about an increase in the cost of doing business due to the government’s decision to increase the rate of electricity, gas tariffs and increasing burden of indirect taxes.

“The decline in exports is a major source of concern,” said Tokhir Mirzoev, the resident representative of Pakistan. However, he said that the fiscal policy could not be blamed for the decline in exports in the last fiscal year. Tokhir listed a number of factors that were causing a slump in exports.

The performance of the Commerce Minister Khurram Dastgir Khan has come under scrutiny due to continuous decline in exports and recent reports suggest that his portfolio might be changed in the next reshuffle of the federal cabinet.

Exports are declining despite All Pakistan Textile Mills Association (Aptma) - the representative body of the exporters - winning a major concession package from the government that includes zero-rating on its inputs and reduction in electricity tariffs. However, Aptma has again started a media campaign, complaining that bureaucrats were hampering implementation on the textile package.

Two years ago, the PML-N government had launched its economic vision, Vision 2025, which promised to address all obstacles, which were pulling back economic growth. One of the important targets of the ten-year plan was increasing exports to $150 billion - a target that seems like a dream just two years after unveiling the vision.

For fiscal year 2016-17, the government has projected exports to grow to $24.75 billion and has estimated that the imports will surge to $45.2 billion by end of this fiscal year.

Monthly statistics

The monthly trade statistics also depict a depressing scenario. The trade deficit in July contracted 26% over June due to contraction in both imports and exports. Exports fell 10.4% in July over the last month, while imports contracted 20.4%, data from PBS showed.

Published in The Express Tribune, August 11^th, 2016.

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