ISLAMABAD: Pakistan’s trade deficit contracted over 11% to $21.5 billion in first eight months of the current fiscal year, primarily because of a steep decline in imports but the growth in exports remained sluggish, underscoring the need for a review of the policy of subsidising exporters.
Exports, both on month-on-month and year-on-year basis, fell in February 2019, which put a question mark over the claims made by the Ministry of Commerce while giving huge fiscal incentives to the exporters, especially the textile sector. Despite the fiscal incentives and currency depreciation, the exports stood below $2 billion in February.
Trade deficit that stood at $24.2 billion in July-February FY18 shrank 11% to $21.5 billion in the corresponding period of current fiscal year 2018-19, the Pakistan Bureau of Statistics (PBS) reported on Tuesday.
In absolute terms, there was a reduction of $2.7 billion in the trade deficit and $2.4 billion came from the import side.
Overall imports during July-February FY19 dropped 6.13% to $36.6 billion. Exports during the first eight months of the current fiscal year amounted to only $15.1 billion, higher by just 1.85% or $275 million.
This came despite the fact that the central bank, in consultation with the finance ministry, let the currency depreciate by 32.7% since January last year. The Pakistan Muslim League-Nawaz (PML-N) government had given a Rs180-billion package to the exporters. The Pakistan Tehreek-e-Insaf (PTI) government has also provided over Rs30-billion package in shape of lower gas and electricity prices.
Adviser to Prime Minister on Commerce and Investment Abdul Razak Dawood had claimed that the PTI government would achieve a record $27 billion worth of export by the end of current fiscal year. But the quantum of exports in the first eight months was equal to only 55% of the target.
Dawood vowed to reach the $27-billion mark on the back of $1 billion worth of market access from China for export of tea and rice and reduction in cost of doing business for the exporters. Last month, the commerce adviser voiced hope that exports would soon start picking up once all the policy and administrative measures fully kicked in.
The Ministry of Commerce on Tuesday gave a briefing to the Economic Coordination Committee (ECC) of the cabinet on the status of exports. The ECC directed the ministry to present a three-year export enhancement plan before the end of current month.
The cabinet body gave incentives to the exporters before examining actual reasons of the decline in exports.
Pakistan closed the last fiscal year at $37.6 billion of trade deficit, which became the key reason behind the highest-ever current account deficit of $18.9 billion in the year. The PTI government wants to cut the trade deficit close to $26 billion, which seems highly impossible now. The value of exported goods was 242% less than the value of imports, which continuously improved because of the reduction in the import bill.
The trade balance in February 2019, as compared to the same month a year ago, improved but only because of contraction in imports. The trade deficit shrank one-fifth from $2.9 billion to $2.3 billion in February. In absolute terms, there was a reduction of $577 million in the trade deficit on an annual basis.
In February 2019, the imports in dollar terms declined to $4.1 billion compared to $4.76 billion in February last year, which reflected a contraction of over 12.2%, reported the PBS. Exports also decreased by 0.4% to below $1.9 billion in February, a net reduction of $7 million only.
On a month-on-month basis, the exports contracted 7.5% in February over the preceding month. Exports decreased $154 million to $1.9 billion. Imports also shrank 7.2% to $4.2 billion last month. Resultantly, the trade deficit contracted 6.9% to $2.3 billion in February over January.
Published in The Express Tribune, March 13th, 2019.