ISLAMABAD: Pakistan seems to have its work cut on the external trade front, as its monthly import bill for January jumped to a record $5.6 billion - highest in history - with the trade deficit widening to $21.5 billion for the seven months of the ongoing fiscal year.
Despite imposition of regulatory duty on hundreds of tariff lines and putting in place non-tariff barriers for half the seven-month period, which the court has now overruled, Pakistan saw its January import bill surge 14.2% month-on-month. Exports during January also dipped 0.3%, amounting to $1.97 billion compared with December’s figure, widening the month-on-month trade deficit by 24% to $703 million.
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The development is alarming for Pakistan’s policymakers as the import bill surged after the central bank allowed the rupee to depreciate by over 5% during December. It also comes at a time of declining foreign exchange reserves that have come under pressure due to external debt servicing and repayments.
On a cumulative basis, the trade deficit - gap between exports and imports - during July-January was equal to 84% of the government’s annual target of $25.7 billion, destroying official projections of current account deficit and foreign currency reserves.
The value of goods imported exceeded the value of those exported by $21.55 billion in the July-January period, reported the Pakistan Bureau of Statistics (PBS) on Friday.
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Exports in July-January period increased by 11.11% to almost $13 billion but these are only equal to 56% of the annual export target of $23.1 billion. In absolute terms, export receipts were up by $1.3 billion during the first seven months.
The value of imports stood at $34.5 billon, which was 18.9% or $5.5 billion higher than the import bill booked during the first seven months of the last fiscal year. The seven-month import bill was equal to 70% of the annual target.
The current trade deficit is already placed on a higher base, as Pakistan closed the last fiscal year at a record $32.4-billion deficit. The level also indicates that this year the current account deficit would remain far higher than official projections of $9 billion.
The government had made macroeconomic projections on the basis of conservative growth in imports and higher growth in exports, which showed external financing requirements at the lower end.
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However, the country’s external account started depicting a negative picture immediately after the start of the new fiscal year. The country booked a record six-month current account deficit of $7.5 billion during the first half of the fiscal year, which was largely financed by using official foreign currency reserves.
The official gross foreign currency reserves held by the State Bank of Pakistan have already slipped to $13.1 billion despite $5.5 billion in loans during the first six months of the fiscal year. By excluding domestic commercial bank borrowings, the net SBP reserves are not more than $7 billion.
On a year-on-year basis, Pakistan’s exports grew to $1.97 billion in January over the same month of the previous fiscal year, according to the PBS. Exports were higher by 11.04% or $196 million over the receipts of January 2017.
Imports grew at almost double the pace, increasing 18.9% in January. The import bill was $910 million more than that of January 2017. Consequently, the trade deficit widened 24.44% or $3.63 billion in January over the same month of the previous year. In absolute terms, the deficit was higher by $714 million.
Published in The Express Tribune, February 10th, 2018.
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