Pakistan booked a trade deficit of $23 billion during the first nine months of this fiscal year – 83% of the annual target – as steeper reduction in imports was offset by an unwarranted dip in exports.
The Pakistan Bureau of Statistics reported on Monday that the shortfall between imports and exports was down $12.6 billion, or 35.5%, year-on-year (YoY). The decline was due to the government halting virtually all imports except for a few prioritised goods.
The annual export target was set to $38 billion, but only 56% of this was achieved in the first nine months. According to the PBS, exports totalled $21 billion, down by $2.3 billion, or 10%, YoY while imports amounted to $44 billion, down by $15 billion, or 25% YoY.
Although lower imports helped contain the current account deficit to around $4 billion, it has camouflaged the rapid deterioration in exports. Exporters – currently living and growing on state subsidies and duty-free quotas – have failed miserably in taking advantage of the steep currency devaluation at a time when the government has started dragging its feet on reviving the International Monetary Fund (IMF) programme.
The fall in imports is also temporary, caused by administrative controls, which led to banks not to clear letters of credit (LC) and creating other administrative hurdles. The government had projected imports to be around $65.6 billion by the end of the current fiscal year. It is 68% of that target in nine months. The central bank is being asked by the IMF to withdraw its instructions issued to the banks for priority allocation of the sacred foreign currency.
The PBS stated that, on a YoY basis, exports contracted by 15% in March, standing at $2.4 billion, while imports dropped by over 40% in the same month. The yearly trade deficit narrowed by 60% to $1.5 billion in March with the monthly trade deficit shrinking by one-fifth last month as exports rose by 8% and imports fell by 5%.
The Monetary Policy Committee of the State Bank is meeting today (Tuesday) to review its interest rate, currently at 20% but below the IMF’s demanded rate.
The SBP governor met with the finance minister in a closed-door meeting on Monday – a day before the announcement of the new monetary policy. The new interest rate will also be seen as an indication of Pakistan’s commitment to the IMF programme.
Published in The Express Tribune, April 4th, 2023.
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