Pakistan’s trade deficit touches new height, stands at $32.6b

Overvalued rupee, minimal export incentivisation hurting exports

ISLAMABAD: Pakistan booked a record trade deficit of $32.6 billion in the last fiscal year after exports nosedived to a six-year low while imports surged to a historical level of $53 billion, the Pakistan Bureau of Statistics (PBS) reported on Tuesday.

The government missed all of its trade sector targets for fiscal year 2016-17 that ended on June 30, which adversely affected its current account deficit projection and official foreign currency reserves. This also puts a question mark over the projections made at the time of budget making every year.



The gap between imports and exports widened to $32.3 billion during July-June period of the previous fiscal year, according to PBS. It was 36.3% or $8.7 billion more than the preceding fiscal year. The trade deficit was also $12 billion higher than the government’s own target for fiscal year 2016-17, which can have adverse consequences for foreign currency reserves.

The finance ministry meanwhile, is busy painting a rosy picture of the external sector, which is putting unabated pressure on the balance of payments position.

It was the fourth straight month when the trade deficit breached the previous highest record and the country closed the year with a $32.6 billion trade deficit.

Fresh trade statistics have further deepened concerns about the long-term sustainability of the external sector, which the government is already maintaining by borrowing from foreign countries and commercial banks. Cheaper imports have also started hurting import-substitution industries as government policies including increased taxation have made these industries cost ineffective.

Exports plunged by 1.63% to $20.44 billion during the previous fiscal year - falling to a six-year low level. The exports were $339 million less than the receipts in the preceding year. This figure was also $4.3 billion lower than the official target of $24.8 billion set by the government itself for the last fiscal year.

In comparison, the import bill increased to $53 billion in the last fiscal year - the highest ever in Pakistan’s history. The figure reflects an increase of $8.34 billion or 18.7% over the previous fiscal year.

In this case too, the import bill breached the government’s own target by $7.8 billion. It was 259% more than the exports during the same period. Foreign remittances also witnessed a decrease in the last fiscal year. One of the reasons behind the steep decline in exports and ballooning trade deficit was a strong rupee against the US dollar that has made imports cheaper. The State Bank of Pakistan (SBP) had depreciated the rupee by 3.1% to Rs108.25 against the US dollar on July 5. However, Finance Minister Ishaq Dar’s intervention again strengthened the rupee.

Due to this uncontrolled trade deficit, the balance of payments position is now projected to worsen to unfathomable depths never projected by the finance ministry. The current account deficit has already touched $10.6 billion during first eleven months of the last fiscal year.

It was the fourth consecutive year when the PML-N government has missed its annual export growth target, despite the country enjoying a duty-free status on its exports to the European Union. Exports were barely 6.7% of Pakistan’s estimated Gross Domestic Product (GDP).

The government admits that exports have to be increased to at least one-tenth of the total size of Pakistan’s economy for a stable external sector. To this end the government announced two half-hearted incentives for exporters in the textile sector.

However, growth remains stunted with multiple complaints regarding even these packages related to partial and delayed funding, fuelling resentment amongst exporters. One-fourth of the total export receipts went for servicing of the country’s external debt during July-March period of this fiscal year, further emphasising the need for increasing export levels.

Annual results

On an annual basis, the trade deficit in June shrunk 6.1% compared to June of last year after exports showed double-digit growth. The trade deficit decreased to $2.62 billion in June 2017, which in absolute terms was $170 million less than the deficit recorded in June 2016. Exports in June increased 16.1% to $1.9 billion while imports slightly grew to $4.53 billion.



On a monthly basis, exports in June increased 17.5% to $1.9 billion over exports recorded in May, according to the PBS. In absolute terms, the exports were up by $285 million. On a monthly basis, the imports contracted 11% to $2.6 billion.

Published in The Express Tribune, July 12^th, 2017.

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