Widening trade deficit

An increasing import bill along with a comparatively slow growth in exports

That the trade gap in FY21 widened – quite sharply – is no surprise. It could be seen coming up. Because while there was a comparatively slow growth in exports, the import bill was also constantly rising – for a host of reasons, as follows:

One, the government had to import wheat and sugar to make up for the shortfall in local demand; it also had to import cotton whose output of less than nine million bales in the outgoing fiscal year fell awfully short of the 16 million bales required for local consumption. Two, as the world economy races back to life with ease in the Covid-induced curbs, there has been a surge in the demand for Pakistani exports – something that jacked up the imports of raw materials and machinery to raise capacity and meet the growing demand. Three, rising crude oil prices in the international market due to a rise in global demand amid the revival of economic activities also caused an increased outflow of dollars. Four, rise in import of mobile phones, tyres, fertilisers as well as antibiotics and vaccines has also been seen in the outgoing fiscal year.

Number wise, the annual import bill rose to $56.091 billion in FY21 from $44.574 billion over the corresponding months of last year. Thus the import bill swelled by $11.517 billion, or 25.8%, in the outgoing fiscal year. As against this, exports posted a growth of 18.2% or $3.9 billion, rising to $25.294 billion in FY21 from $21.394 billion over the last year. This exponential growth in imports as against a relatively small growth in exports mainly led to a widening trade deficit which reached $30.796 billion in FY21 from $23.180 billion in FY20, posting a cumulative rise of $7.616 billion or 32.9%.

Fortunately, a 29% rise in foreign remittances totaling about $29 billion has come in handy to somewhat even out the growth in the import bill, and serve to keep the current account in surplus. A continued growth in the volume of expat dollars may help Pakistan on the external sector in the new fiscal year. Conversely, the relaxation in debt repayment granted by the lenders because of the raging pandemic will go away and a further opening up of the economy may jack up the demand for dollar – something that can make matter difficult for Pakistan on the external sector