The boost in exports achieved in the latter half of previous calendar year, 2020, is subsiding.
According to the Pakistan Bureau of Statistics (PBS), exports stood at $2.07 billion in February 2021. Although exports had surpassed the $2 billion mark, the figure was 3.63% lower than that reported in January 2021 and 3.23% lower than that reported in February 2020.
Exports had peaked at $2.37 billion in December 2020. Given the current domestic capacity constraints, the recovery in competing markets and demand patterns in major product categories in Pakistan, exports are likely to oscillate around the psychological threshold of $2 billion.
The pandemic shock dealt a blow in March and April 2020. Exports tumbled to less than $1 billion in April 2020.
Analysts often refer to the export receipts reported by the State Bank of Pakistan (SBP) to gauge the country’s export performance. The SBP reports the money value realised in foreign exchange or non-resident rupee account against exports of goods.
The time lag between the shipment of export goods and the realisation of export receipts can lead to differences between the figures reported by the SBP and the PBS. This difference is minimised in the long run. PBS draws its data from the Customs record.
With concessions likely being provided to buyers in the pandemic-hit destinations, the time lag between the shipment and realisation of export receipts may be more than that in normal times. Although the SBP reported negative values each month for period-to-period growth in export receipts since April 2020, the monthly values were reported at 29% in September 2020 and 14% in November 2020.
Furthermore, the decline in export receipts was not as severe in April 2020 as was the decline reported by the PBS.
On the other hand, the PBS reported imports at $4.62 billion in February 2021, down 4.09% from $4.82 billion in January 2021, but up 10.92% from $4.17 billion in February 2020.
The trade deficit was 26% higher in February 2021 compared to February 2020.
The SBP reports import payments based on exchange records, while the PBS reports data on the basis of flow of commodities collected by Pakistan Customs.
The period-to-period growth rate for import payments was negative for all months between February 2019 and November 2020. Import payments increased 6.1% period-to-period in January 2021, the highest since August 2018.
The deficit between receipts and payments in the first seven months (Jul-Jan) of FY21 was $13.7 billion. Comparatively, it took nine months for the deficit to surpass $13.7 billion in FY20 but took six months to do so in FY18 and FY19.
According to the summary provided by the PBS, the trade deficit in the first eight months (Jul-Feb) of FY21 was 10.9% higher than that in the same period of previous fiscal year. However, it was 26% lower in FY20 than the amount reported in FY19.
The higher growth in exports and imports relative to the gross domestic product (GDP) is likely to improve trade openness, which is the sum of exports and imports as a percentage of GDP.
According to data extracted from the PBS, imports of palm oil, power generating machinery, mobile phones and road motor vehicles including CBU and CKD/SKD units increased in February 2021 compared to February 2020.
Interestingly, imports of raw cotton decreased 20.3%. It is also important to mention that imports of textile machinery increased 10.3% in February 2021 over the value reported in February 2020.
This trend suggests a revival of purchasing power of businesses and consumers, though a slowdown in imports of textile raw material must be noticed.
The large-scale manufacturing (LSM) index surged 9.13% year-on-year in the first seven months of FY21. Automobile and pharmaceutical industries, which had reported negative year-on-year growth in the first seven months of FY20, reported more than 10% growth in the same period of FY21.
Although Pakistan witnessed a surge in recent months in trade and the LSM index, the biggest challenge facing the government is to acquire enough vaccines to ensure a reduction in the spread of Covid-19.
According to a note titled “Developing and Delivering Covid-19 Vaccines Around the World”, published by the World Trade Organisation (WTO), 2 billion doses are expected to be distributed by the end of 2021.
The note emphasises the fact that vaccine development not only requires capacity in the exporting countries, but also infrastructure, border and customs facilities as well as capabilities to distribute and ensure surveillance in the importing countries.
For instance, the importing countries will not only have to develop cold chains for effective distribution, but will also have to introduce tight regulations to ensure that substandard and low quality vaccinations do not proliferate in the market.
Extracting data from the International Trade Centre’s Trademap.org, Pakistan imported $248.7 million worth of vaccines for humans in 2019. The largest sources were Belgium, France and India.
Pakistan imported $45.4 million worth of vaccines from India in 2019. It increased from $8.7 million in 2015.
Pakistan has been importing more than $200 million worth of vaccines since 2012. However, the major sources have changed.
Denmark contributed to more than 50% of the imports between 2012 and 2014. The number decreased to $1.2 million in 2019. Imports from Belgium and France increased significantly over the last five years.
Belgium, Ireland and France are the three largest exporters of vaccines around the world, contributing more than 50% to the total export supply. India exported more than $770 million worth of vaccines in 2019.
Although Pakistan is part of the Gavi vaccine alliance, which will help meet its goals, it must set up trading networks to ensure the availability of vaccinations through different sources.
In essence, the economic indicators in Pakistan have shown improvement over the past few months. The government must ensure that not only the most vulnerable segments of the population are vaccinated, but also the adverse shock to the critical economic sectors is mitigated.
The writer is the Assistant Professor of Economics & Research Fellow at CBER, IBA
Published in The Express Tribune, March 22nd, 2021.