Despite lower exports, trade deficit contracts 13.6%

Gap calculated at $29.2b in 11 months solely due to import compression

ISLAMABAD: Pakistan’s trade deficit shrank 13.6% to $29.2 billion in 11 months of the current fiscal year solely because of import compression as exports decreased marginally for the second consecutive month, despite heavy subsidies for exporters and over 40% rupee depreciation.

The contraction in exports was recorded both in a single month as well as July-May of fiscal year 2018-19. On a monthly basis, the trade deficit in May widened over April, according to the Pakistan Bureau of Statistics (PBS).

This has put a question mark over the performance of the Pakistan Tehreek-e-Insaf government that has claimed it will enhance exports to a record level at the end of its first year in power.  The trade deficit, which stood at $33.8 billion in July-May of the last fiscal year, shrank 13.62% to $29.2 billion in the corresponding period of current fiscal year, the PBS reported on Tuesday.

Trade deficit of Pakistan - a vicious cycle

In absolute terms, there was a reduction of $4.6 billion in the trade deficit and the entire reduction came from the import side.

Overall imports during the period under review dropped 8.5% to $50.5 billion, but the improvement was mainly because of reduction in machinery imports.



Exports in first 11 months of the current fiscal year stood at $21.3 billion, which were down by 0.3% or $63 million as compared to the corresponding period of last year.

Exporters have long been getting subsidised loans, electricity and gas, and are exempted from the normal income tax regime. The central bank has let the currency depreciate by over 40% to give a boost to exports and curb imports.

The PTI government has also provided over Rs30-billion package in the shape of lower gas and electricity prices, which would continue in the new fiscal year.

The quantum of exports in 11 months was equal to only 79% of the $27-billion annual target that the government had set for itself. Exports are not picking up despite having market access to China.

Commerce Adviser Abdul Razak Dawood claimed that the Chinese market access would boost exports by an additional $1 billion during the current fiscal year. But so far it has not happened.

Pakistan closed the last fiscal year with a trade deficit of $37.6 billion, which became the key reason behind the highest-ever current account deficit of $18.9 billion in the year.

Govt needs to invest in export-oriented economy

The government wanted to cut the trade deficit to $26 billion, but it has missed the goal with a wide margin. The value of export goods was 237% less than the value of imports, which continuously improved because of a reduction in the import bill.

The trade balance in May this year as compared to the same month a year ago improved but only because of compression of imports. The trade deficit shrank 19.3% from $3.64 billion to $2.9 billion in May this year. In absolute terms, there was a reduction of $704 million on an annual basis.

In May 2019, the imports in dollar terms fell to $5 billion compared to $5.8 billion in the same month of last year, which reflected contraction of over 12.8%, reported the PBS. But exports also decreased 1.7% to $2.1 billion in May, a net reduction of $127 million.

On a month-on-month basis, the exports rose 0.4% in May over the preceding month. Exports increased a mere $8 million to $2.1 billion. Imports increased 6% to $5 billion last month. Resultantly, the trade deficit widened 10.5% to $2.9 billion in May over April.

Published in The Express Tribune, June 19^th, 2019.

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