Trade deficit

With remittances expected to decline sharply due to job losses devaluation is almost certain to continue


October 07, 2020

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The overall trade deficit continued to widen, with data for the first quarter of this fiscal year showing a $5.8 billion gap between imports and exports. The increase is even more concerning because of the 39% currency devaluation, which has severely hurt purchasing power while bringing none of the export gains associated with such a decrease. After much contortion, the only silver lining we can find in this is that the year-on-year increase was only $115 million, or about 2%. But even this is undercut by the fact that imports only grew by $63 million, while exports actually fell by $52 million, or around 1%.

These terrible numbers appear to have finally woken officials at the Finance Ministry from the pipe dream they were living in when they were painting rosy recovery pictures as recently as August, even though none of the underlying signs were there. They have finally started admitting that economic recovery could take years rather than months. It remains to be seen whether their elected bosses are aware of the nightmarish reality ahead. Underscoring this concern are recent efforts to use half-truths to portray failure as success.

Federal cabinet members spoke proudly of how exports in September 2020 went up by $108 million, or about 6%, compared to last year. The problem is that imports were up by almost $500 million or 13%. Meanwhile, the deficit actually shot up by 19.5%. That is hardly a cause for celebration. But even if we were to look at exports alone, the fact of the matter is that the PTI has missed its own annual export targets for each of its first two years. This year, the government’s $27.7 billion export target would require a 6.2% growth rate. The September figures were actually slightly below that, which further calls into question why the government thinks it deserves a pat on the back.

Meanwhile, with remittances expected to decline sharply due to job losses among overseas Pakistanis in the Middle East and elsewhere, devaluation is almost certain to continue.

Published in The Express Tribune, October 8th, 2020.

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