Pakistan’s two-month trade deficit widened 120% to $7.5 billion after imports saw a new historic peak but exports plunged for the third successive month despite heavy subsidies being given to exporters and significant currency devaluation.
The external trade figures released by the Pakistan Bureau of Statistics (PBS) at the weekend have torpedoed two-month old balance of payments projections given in the Annual Plan 2021-22. The government had shared the plan with the parliament at the time of announcing the budget.
Pakistan’s trade deficit - the gap between imports and exports - increased to $7.5 billion during July-August period of fiscal year 2021-22, the national data collecting agency stated. The deficit was $4.1 billion or 120% more than the comparative period of the previous fiscal year.
The trade deficit trend suggests that the deficit by June next year would be far higher than the targeted $28.4 billion by the government. The two-month deficit was already equal to 26% of the target.
The trade figures were slightly worse than what Adviser to Prime Minister on Commerce Razak Dawood had shared with the media early this week.
During the July-August period of this fiscal year, exports increased nearly 28% and stood at $4.6 billion as compared to $3.6 billion in the same period of last year, according to the national data collecting agency. In absolute terms, there was an increase of $989 million in exports during the first two months of the current fiscal year.
The two-month exports were equal to 17% of the annual target of $26.3 billion. But the Ministry of Commerce has projected annual exports at $31 billion.
Imports during the July-August period increased 73% to $12.1 billion. In absolute terms the imports grew $5.1 billion, according to the PBS. The two-month import bill was equal to 22% of the budgeted figures.
The external trade projections have already become irrelevant within two months, showing weakening capacity of the State Bank of Pakistan, Ministry of Commerce, Ministry of Planning and Development that makes annual plans.
Last month, Prime Minister Imran Khan asked his economic team to check the increase in the import of non-essential goods, including that of vehicles, as his government might face a challenge of an unmanageable current account deficit because of a projected record of $70 billion in imports this fiscal year.
Growing imports would either increase the external borrowing requirements or dent the official foreign exchange reserves, as the exports are not matching the pace of imports. The foreign remittances -another important source of debt-free financing is likely to increase in single digits, as per the central bank projections.
The sources said options to curb imports include imposing new tariff and non-tariff barriers. The trade deficit started widening the moment the government decided to let the economy grow after keeping it under check for two and half years.
For the third consecutive month Pakistan’s exports dropped from their previous levels. The country’s exports in goods stood at $2.23 billion in August over a year ago, according to the PBS. They were higher by 41% or $650 million over the same month of the last year.
However, the $2.23 billion worth of export receipts were the lowest in three months. The exports had peaked to $2.73 billion in June, prompting celebrations on twitter - the micro blogging website - by the government. Then it dropped to $2.34 billion in July and finally further slipped to $2.32 billion in August.
Pakistan’s exports have long remained around $2 billion a month and the trend did not significantly change despite 39% currency depreciation during the Pakistan Tehreek-e-Insaf (PTI) government’s tenure in the past three years.
Every successive government has doled out billions of rupees in subsidies to the exporters every year on account of cheap loans, subsidised provision of electricity and gas and reduced income tax rates. The exporters pay a nominal tax on their incomes. Yet, they have failed and the government does not seem ready to review its flawed strategy of pampering a few hundred exporters.
The imports last month hit a record high of $6.5 billion, which were higher by 95% or $3.14 billion, according to the PBS. As a result, the yearly trade deficit widened 144% to $4.2 billion in August.
On a month-on-month basis, exports decreased over 4.5% to $2.23 billion, according to the PBS. There was a reduction of $106 million in export receipts in August as compared to the preceding month. The imports registered a surge of 15.4% and stood at $6.5 billion last month. In absolute terms, there was an increase of $862 million in the import bill last month. As a result, the trade deficit widened 30% or $968 million in August over July.
Published in The Express Tribune, September 5th, 2021.
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