Trade deficit widens to $9.3b in seven months

Gap between exports and imports remains below projection by $2 to $2.5 billion due to record high exports.

ISLAMABAD: Pakistan’s trade deficit rose to $9.3 billion in seven months of the current financial year but was still much lower than projection, easing pressure on the rupee and foreign exchange reserves.

The trade deficit, the gap between exports and imports, remained below projection by $2 to $2.5 billion due to record high exports in January, show trade figures released by the Federal Bureau of Statistics on Wednesday.

The deficit is $800 million or 9.3 per cent more than the gap during the corresponding period of the last financial year.

From July to January, exports to the rest of the world stood at $13.3 billion, which were $2.5 billion or 22.7 per cent more than exports in the corresponding period last year. Imports during the period stood at $22.6 billion, showing a growth of 16.7 per cent over last year. In absolute terms, imports increased $3.3 billion.

Despite double-digit growth in imports in seven months, Pakistan may not face significant problems on the external front due to high growth in exports as well as continuous increase in remittances. An official of the finance ministry said the unprecedented surge in exports has resulted in key gains at a time when the domestic fiscal position is bleak.

He said it will help restrict the current account deficit – the gap between external receipts and payments — to 1.6 per cent of the total size of economy or $3.2 billion by the end of financial year. This is even better than the pre-flood projection when the government estimated a current account deficit of two per cent of gross domestic product (GDP).

After the floods in the summer of last year, the government revised the current account deficit projection to three per cent of GDP or around $6 billion.

The official said the pick-up in exports will also ease pressure on the exchange rate and foreign exchange reserves. However, a higher current account deficit would take a big pie from over $17 billion in foreign exchange reserves due to a halt to foreign inflows, thanks to the government’s inability to levy reformed general sales tax from July last year.

At the start of the current financial year, the government had estimated a trade deficit of $18 billion that has been revised downward to $13 billion, said the finance ministry official. In January, imports grew 3.7 per cent, which was outpaced by a 38.3 per cent growth in exports. Exports grew in dollars terms due to better return on textile products in the international market.

The FBS report shows that in January the trade deficit stood at $1.2 billion, which was $521 million or around 33 per cent less than in January 2010.

In January this year, exporters shipped goods worth $2.32 billion as compared to exports worth $1.7 billion in January 2010. In absolute terms, exports were $644 million more than exports of the corresponding month of last year. Imports stood at $3.5 billion against $3.3 billion in January 2010, showing a growth of 3.7 per cent. “Depleting inventories due to world economic recovery, more export orders from China and value addition in textile products led to record high exports in January,” said Tariq Puri, Chief Executive of Trade Development Authority of Pakistan.

He said imports showed nominal growth due to low oil imports that was caused by a reduction in consumption in the domestic market.

According to a latest World Bank report, the terms of trade are in favour of Pakistan in value terms. It stated that based on December 2010 trade data, export value increased 15.1 per cent against increase of 6.5 per cent in import value.

Published in The Express Tribune, February 10^th, 2011.