Trade deficit shrinks by 41%

KARACHI:

Pakistan’s trade deficit, the gap between import payments and export earnings, has significantly reduced by 41% to $1.61 billion in July, mainly attributed to a substantial decline in imports below $4 billion during the month.

According to the Pakistan Bureau of Statistics (PBS), the trade deficit stood at $2.73 billion in July of the previous year. Comparatively, it has decreased by around 13.7% from $1.86 billion in the month of June.

Imports experienced a notable drop of 26.4% to $3.66 billion in July 2023, compared to Rs4.98 billion in the same month last year. On the other hand, export earnings decreased by 8.6% to $2.06 billion in the review month, compared to $2.25 billion last year.

Arif Habib Limited, Head of Research, Tahir Abbas attributed the significant reduction in import payments to the massive drop in imports. He mentioned that Pakistan made no diesel imports in July, as there was sufficient inventory of the product available in the country during the month.

In the previous fiscal year that ended on June 30, 2023, the share of energy in total imports was almost one-fourth at $72 billion. Pakistan heavily relies on imported energy to meet its domestic demand.

Abbas noted that the import numbers reported by the State Bank of Pakistan (SBP) later in the month for the review period may appear higher, as the bank cleared some backlog import payments during July.

It is worth noting that the SBP records import and export numbers based on trade payments, while PBS compiles trade numbers based on goods shipments at ports. Hence, there may be differences in their monthly figures. However, Abbas warned that the trade deficit may increase slightly from August onwards after the government removes all restrictions on imports and fully reopens imports to support moderate economic activities in the country under the new IMF loan programme.

He predicted that the growth in imports would remain moderate, contrary to the assumption of a significant jump, as Pakistan’s foreign exchange reserves currently stand at $8.2 billion, which is enough for a two-month import cover.

Based on his projections, Abbas expects the trade deficit to remain in the range of $1.75-2 billion per month throughout the year, totalling around $24-25 billion in FY24. In FY23, the trade deficit was recorded at $24 billion, as per PBS, while the central bank reported it as $27.5 billion for the just-ended fiscal year.

Published in The Express Tribune, August 2^nd, 2023.

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