Pakistan's trade deficit widens to historic level

Crosses full-year’s target in nine months, standing at $23.4b; monthly import bill hits record high

ISLAMABAD: In what is seen as a dangerous development for Pakistan’s external sector, the monthly import bill crossed $5 billion for the first time in March, which took the nine-month trade deficit to $23.4 billion - also a new record.

The gap between imports and exports stood at $23.38 billion in the July-March period of current fiscal year, which was 38.8% or $6.53 billion more than the comparative period of previous year, stated Pakistan Bureau of Statistics (PBS) on Tuesday.



It was the highest-ever trade deficit recorded in the country’s history for the nine-month period.

The main reason behind the ballooning deficit was constant double-digit growth in imports and contraction in exports. The nine-month trade gap was $2.9 billion more than the fiscal year’s annual deficit target of $20.5 billion, set by the Ministry of Finance.

Exports fell 3.1% to only $15.1 billion during July-March 2016-17, which were $478 million less than the shipments made in the comparative period of last year.

Imports, however, increased 18.7% to $38.5 billion in the same period. In absolute terms, the import bill was $6.6 billion higher than the previous year.

“This is an alarming situation and the government should immediately call an emergency meeting of the federal cabinet to discuss the deteriorating external sector,” commented Dr Ashfaque Hasan Khan, former economic adviser to the Ministry of Finance.



He said the trend showed that the import bill would cross $50 billion for the first time and the worrisome element was the contraction in exports.

Exports in the first nine months were about 61% of the annual target of $24.8 billion while imports reached 85% of the annual projection of $45.2 billion.

Slower-than-projected export earnings show that like previous three years the government will not be able to achieve its annual export target this time again. This comes despite the fact that the government has given two bailout packages to the exporters in the last one year.

These packages had been given without addressing root causes of the persistent decline in exports - high cost of doing business and a lack of enabling environment.



In its four budgets, the PML-N government has levied an unprecedented Rs1.2 trillion in new taxes on every kind of trading, business and banking activity. It also slapped various surcharges on electricity and gas, increasing the cost of doing business for the industries.

In its latest statement on the state of Pakistan’s economy, the International Monetary Fund (IMF) has asked Islamabad to remain “vigilant” about the external sector, which is facing problems. However, it gave the warning only after the end of its three-year $6.6 billion bailout package.

However, the Ministry of Finance in a statement said on Tuesday the government was cognisant of the challenges on the external side, which were more related to the weak global economic environment that not only affected Pakistan’s exports but other emerging economies were also facing the same issue.



It claimed that the negative impact on exports was bottoming out as from July to February some months showed growth on a yearly basis.

The delay in receipt of the Coalition Support Fund also affected the external sector, the ministry said, adding the government had taken a number of policy measures, which were likely to help increase exports.

The ministry attributed the increase in imports to the expanding economic activities.

However, independent economists said the ballooning trade deficit had exposed vulnerabilities of Pakistan’s economy as financing such a huge gap in the midst of slowing foreign remittances and low level of foreign direct investment had become a challenge for the federal government.

This would mean a higher trade deficit and higher current account deficit. The IMF recently revised its current account deficit projection for Pakistan from 1.5% of gross domestic product (GDP) to 2.9%.

Likewise exports, worker remittances were also on the wane, standing at $14 billion in the first nine months, which were about 3% less than the previous year.



March data

On an annual basis, the trade deficit in March was 77.4% more than the comparative period of previous year and the main reason was the record imports of goods valuing $5.1 billion.

The trade deficit last month increased to $3.2 billion, which in absolute terms was $1.4 billion more than the deficit recorded in March 2016.

Exports in March stood at $1.8 billion, showing a small growth of 3.6% compared to last year, according to the PBS. In absolute terms, the exports were up by just $63 million.

However, the growth in imports jumped to 41.2% as payments grew to $5.1 billion in March. The import bill was $1.5 billion more than last year.

Even on a monthly basis, the trade deficit widened 15% in March over February.