Pakistan surpasses annual export target

Trade deficit shrinks to $24 billion, beating IMF projections by $10b

ISLAMABAD:

Pakistan has exceeded its annual export target, helping to restrict the trade deficit to $24 billion for the just-ended fiscal year—nearly $10 billion less than the International Monetary Fund’s (IMF) original projection. According to figures released by the Pakistan Bureau of Statistics (PBS) on Tuesday, the trade deficit—the gap between exports and imports—was 12.3% or $3.4 billion less than the previous fiscal year.

The trade deficit of $24 billion is significantly lower than the estimates of both the finance ministry and the IMF. Pakistan managed to keep the deficit in check by discouraging imports while maintaining healthy export momentum, which grew by over 10% during the last fiscal year. The trade deficit was $4.5 billion less than the government’s projection and nearly $10 billion less than the IMF’s forecast, which had used a $34 billion trade deficit figure during negotiations for the last Stand-By Arrangement. This higher projected deficit resulted in greater external financing requirements.

The current account deficit is also expected to be far lower than the IMF’s projections, with the central bank set to release the figures next week. The IMF’s trade deficit figures missed the mark by almost 29% compared to the original forecast, raising questions about the accuracy of their projections and motives.

Imports during the last fiscal year amounted to $54.7 billion, down by $464 million or 1%, according to PBS. Actual imports were also $10 billion less than the IMF’s forecast from June last year, which it published in a staff-level report following the approval of the Stand-By Arrangement. The government had initially estimated $58.7 billion in imports at the time of the budget, later reducing this figure to $52 billion.

The imports would have been $1 billion lower had the interim government not allowed unnecessary wheat imports despite a domestic bumper crop. This decision resulted in a $1 billion expenditure and a glut in the local market, forcing farmers to either store their produce or sell it below production cost.

Under the next IMF package, Pakistan may have to lift import restrictions, necessitating significant external financing. The PBS stated that exports for the last fiscal year stood at $30.6 billion, a $2.9 billion increase or 10.5% rise, surpassing the government’s $30.1 billion annual export target. Rice exports significantly contributed to exceeding this target.

However, exporters have not fully leveraged the rupee devaluation to increase exports, partly due to high energy prices. The government has now placed exporters under the normal income tax regime. Last month, the prime minister announced a Rs200 billion industrial package to reduce electricity prices for industries by Rs10.69 per unit, though the IMF has yet to approve this package.

Despite surpassing the annual target, monthly export levels struggled to maintain the high of $2.8 billion achieved in May. The PBS data showed that on a month-on-month basis, the trade deficit widened as exports contracted by 19% to $2.5 billion. In the preceding month, exports had increased to $2.8 billion but fell back to around $2.5 billion.

Imports remained flat at $4.9 billion last month. The trade deficit in June was $2.4 billion, 31% higher than the previous year. On a year-on-year basis, June exports amounted to $2.5 billion, a 7.3% increase compared to the same month last year. Imports grew to $4.9 billion last month, up by $730 million or 17.5%.

Pakistan’s normal monthly imports ranged between $5.5 billion to $6.5 billion but have been curtailed due to a shortage of foreign currency. The Federal Board of Revenue based its revenue target on $5.5 billion monthly imports. Due to an average of $4.6 billion monthly imports in the last fiscal year, the Customs department sustained over Rs220 billion in shortfalls, contributing to lower sales tax collection at the import stage.