Trade deficit exceeds annual target

Widens to $28.8b in Jul-Jan, indicating need for more foreign borrowing

ISLAMABAD:

Pakistan’s trade deficit widened to $28.8 billion in the first seven months of current fiscal year, which was more than the annual target set by the government, further increasing the foreign borrowing requirement to bridge the yawning gap.

Pakistan Bureau of Statistics (PBS) released data on Wednesday which showed that the trade deficit during the July-January period of current fiscal year was $13.8 billion, or 92%, more than the same period of previous year.

The government had set the annual trade deficit target at $28.4 billion that it breached in the seventh month of the fiscal year.

The government’s external sector projections are heavily dependent on the trade deficit estimates. The higher deficit will now require more foreign borrowing compared to the government’s initial estimates.

The federal government has already taken $10.4 billion in foreign loans during the first half of current fiscal year.

The central bank’s foreign currency reserves are constantly on the decline and dipped further to $16.1 billion due to the increasing trade deficit.

More Chinese financial assistance in the shape of various facilities is on the agenda of Prime Minister Imran Khan’s visit to China, starting today (Thursday).

Imports in the July-January period increased 59% to $46.5 billion. In absolute terms, the imports grew $17.2 billion, according to the PBS.

The central bank has introduced cash margin requirement (CMR) for more imported goods besides curtailing consumer financing to ease the import pressure.

For the first time, a slowdown was witnessed in imports, as the monthly bill was $1.7 billion less than the preceding month.

However, it is not clear whether the slowdown is temporary or will take hold in the coming months.

Exports increased 24% in the first seven months of current fiscal year and stood at $17.7 billion as compared to $14.3 billion in the same period of previous year, according to the PBS. In absolute terms, there was an increase of $3.4 billion in exports.

During the period under review, exports were equal to 67% of the annual target of $26.3 billion, indicating that the target will be met comfortably.

The Ministry of Commerce now projects exports to touch $31 billion in the full fiscal year.

January data

In January 2022, imports were registered at $5.9 billion, showing an increase of $1.1 billion or nearly one-fourth over a year ago, according to the PBS.

The figure provided a sigh of relief to the government that was struggling to meet the growing financing needs after imports remained above $7.5 billion in the previous two months.

PBS stated that exports of goods stood at $2.54 billion in January, higher by nearly 19% ($401 million) over the same month of previous year.

Consequently, the trade deficit widened 26.5% year-on-year to $3.4 billion in January.

Last month, a member of the Economic Advisory Group informed Prime Minister Imran Khan that nearly 90% increase in exports was due to higher global commodity prices.

The government’s trade policies have been hijacked by a few hand-picked influential exporters, who exert pressure to take monetary benefits, keeping the export base narrow and restricted to a few sectors.

Exporters are also keeping their money outside of the country in the hope of further depreciation of the rupee that has lost 45% of value since the Pakistan Tehreek-e-Insaf (PTI) came to power.

On a month-on-month basis, exports decreased 7.9% to $2.54 billion in January 2022 over December 2021, showing a reduction of $218 million.

In January, imports showed a significant contraction of 22% ($1.7 billion) on a month-on-month basis. As a result, the trade deficit declined to $3.4 billion in January, down $1.5 billion month-on-month.

 

Published in The Express Tribune, February 3^rd, 2022.

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