Trade deficit widens 55% as imports outpace exports

Increasing gap suggests external sector challenges will persist in new fiscal year


Shahbaz Rana August 11, 2017
Shipping containers are seen at the Port Newark Container Terminal. PHOTO: REUTERS

ISLAMABAD: Pakistan’s trade deficit widened in July by over 55% to $3.2 billion as even a healthy growth in exports could not match the pace of increase in imports, indicating that external sector challenges will continue to persist.

The value of goods imported into Pakistan exceeded the value of exports by $3.2 billion in July over the same month a year ago, reported the Pakistan Bureau of Statistics (PBS) on Thursday.

The trade deficit in July was $1.14 billion or 55.5% higher than the same month of previous year.

The trend was not different from the last fiscal year when Pakistan registered a record trade deficit of $32.5 billion. The current account deficit had also peaked at $12.1 billion in the year, which wiped $2 billion off the official foreign currency reserves.

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Exports in July increased 10.6% to $1.63 billion. In absolute terms, they were only $156 million higher than the same month of previous year. Imports were valued at $4.8 billon, which was 36.7% or $1.3 billion higher than imports made in July last year.



In the new fiscal year 2017-18, the federal government has targeted to increase the exports to $23.1 billion, which requires 13.2% growth over previous year’s exports of $20.5 billion.

The government is aiming to curtail the import bill to $48.8 billion, which seems impossible, given the trend in the first month of FY18.

This will have direct implications for the current account deficit that the government plans to restrict to $8.9 billion in FY18. Independent economists have estimated the current account deficit in the range of $13 billion to $14 billion.

A higher-than-projected current account deficit will have direct bearing on the country’s foreign currency reserves, which are again on the decline. The State Bank’s foreign currency reserves plunged to $14.398 billion by August 4, 2017, down $1.8 billion since June 30.

Pakistan will require about $20 billion in the current fiscal year to meet its external financing requirements including debt repayments.

However, fresh trade statistics have deepened concerns about long-term sustainability of the external sector, which the government is managing by borrowing from foreign countries and commercial banks.

Cheap imports have started hurting the import-substitution industries, according to former finance minister Dr Hafiz Pasha. However, the Ministry of Finance believes that the growing trade and external deficit is a temporary phenomenon due to higher imports under the China-Pakistan Economic Corridor (CPEC).

Exports have been on the decline since the PML-N government came to power four years ago. It has offered two incentive packages to the exporters, but the packages have remained partially funded.

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Former commerce minister Khurram Dastgir’s portfolio has been changed in the new cabinet. The government has appointed Pervez Malik - a businessman from Lahore - as the new federal commerce minister and Akram Ansari as the minister of state for commerce. Ansari had been elected member of the National Assembly from Faisalabad - the hub of textile exports.

On a month-on-month basis, exports in July increased 14.7% to $1.63 billion over June. These were $281 million higher than the receipts in the preceding month. Imports in July grew 6.64% over June. The month-on-month trade deficit was 22.2% higher in July.

Pakistani exporters also could not expand their export base that comprises a very limited number of products.

Published in The Express Tribune, August 11th, 2017.

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