Finance Minister Shaukat Tarin on Monday grilled trade officials after their forecast for imports in August went off the mark by 18% or $1 billion, pressing the panic button and forcing the government to review its annual trade deficit projection.
Hardly three weeks ago, the Ministry of Commerce had estimated around $5.5 billion worth of imports in August but import payments came in at $6.5 billion - the highest-ever single-month import bill.
The $5.5 billion monthly bill projection was based on the commerce ministry’s assumption that the annual import bill would remain around $70 billion.
The $70 billion annual projection was still $9 billion higher than the central bank’s annual forecast.
After his return from the United States, Tarin held his first meeting to review the increasing trade deficit, indicating the urgency of the matter, which was now threatening the external sector stability.
The finance minister questioned the commerce ministry officials that how could their projections go off the mark by a huge margin of $1 billion within two weeks, at least two participants of the meeting told The Express Tribune.
The commerce ministry was of the view that it made the forecast on the basis of last three years average - an explanation that the minister did not accept, they added.
“The finance minister stressed upon the Ministry of Commerce to conduct sensitivity analysis and build scenarios for effective forecasting both in imports as well as exports for each month of the year,” according to a statement issued by the Ministry of Finance.
The ministry statement said that the commerce secretary briefed the participants that “considering the expansion in economic activity, import of one-time items like vaccines for Covid-19 as well as increased demand for raw material have resulted in an increase in imports during July and August 2021”.
However, the net additional impact of these one-off items was hardly $200 million, they added.
The Pakistan Bureau of Statistics (PBS) reported over the weekend that imports last month hit a record high of $6.5 billion, which were higher by 95% or $3.14 billion. As a result, the year-on-year trade deficit widened 144% to $4.2 billion in August.
Imports during the July-August period increased 73% to $12.1 billion. The two-month import bill was equal to 22% of the budgeted figure.
The increasing imports have a direct bearing on the current account deficit due to almost stagnant exports of $2-2.2 billion a month.
The State Bank of Pakistan (SBP) governor had said last month that the current account deficit “should be talked about with happiness” because it was a sign that the economy was growing.
Read PM for checking imports amid serious spike
But Monday’s proceedings suggested that it was not at all a matter of contentment for the government.
Sources said that the SBP governor on Monday informed the meeting that imports were expected to remain higher than the central bank’s earlier projections.
Data shared with the meeting suggested that all imports were not necessarily being made for a productive economic purpose, which was contrary to the impression given to the prime minister, said the sources.
The finance minister questioned the rising imports of vehicles, which indicated that the government’s automobile policy was not playing the import substitution role, said the sources.
Over 9,200 vehicles were imported during the first two months of FY22, which were almost three times more than the comparative period, the meeting was informed.
Out of these, the new vehicles were nearly 3,000 in the current fiscal year compared with just 216 vehicles in the same period of last fiscal year, said the sources.
Officials tried to explain that vehicle imports surged because of increase in economic activities but the finance minister did not buy this argument, said the sources.
Same was the situation with imports of mobile phones and luxury items, said the sources.
The finance minister was also unhappy with low exports last month, said the sources.
For the third consecutive month, Pakistan’s exports dropped from their previous levels. The country’s exports of goods stood at $2.23 billion in August 2021, according to the PBS.
The commerce ministry claimed that the $2.23 billion worth of exports were higher than its estimate of $1.9 billion. The finance minister questioned the rationale of setting a low monthly export target for August when in July exports were equal to $2.3 billion.
The finance minister stated that the economy was in a state of growth and there was an increased demand for imports, according to the finance ministry. As long as the trade deficit was within a sustainable level, it would stimulate economic recovery, he added.
Tarin said that prudent policies adopted by the present government had stimulated the economic recovery despite the Covid-19 pandemic. “Economy is heading in the right direction.”
Published in The Express Tribune, September 7th, 2021.
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