Trade deficit surges 33% to $9.4b in Q1

In a deadly combination for Pakistan's external sector stability, exports sank while imports grew in double digits during the first quarter of the current fiscal year, causing the trade deficit to balloon by one-third to $9.4 billion.

The international trade bulletin released by the Pakistan Bureau of Statistics (PBS) on Thursday suggested that neither Planning Minister Ahsan Iqbal's Uraan Pakistan programme nor the United Kingdom's (UK) economist Stefan Dercon's economic plan has so far been effective in boosting exports.

According to PBS, the gap between imports and exports reached $9.4 billion during the July-September period. The deficit was $2.3 billion, or 33%, higher than the same period of the last fiscal year.

The $2.3 billion additional deficit in just three months also exceeds the $2 billion loan tranche of the International Monetary Fund (IMF) that the government expects to receive after meeting 50 harsh conditions.

Imports during the first three months reached $17 billion, up $2 billion, or 13.5%, compared to the same period last year. Imports were also more than double the total value of exports during this period.

The PBS stated that exports, meanwhile, fell to just $7.6 billion in three months, down 3.8% year-on-year. In absolute terms, exports were $303 million less than the same period last year.

Pakistan's external sector stability now largely hinges on smooth and higher inflows of foreign remittances, as exports continue to lag despite multiple initiatives announced by successive governments over a period of time. Neither the Planning Commission's Uraan Pakistan programme nor Dercon's Economic Growth Plan has helped boost exports. In the midst of falling exports and rising imports, the government has opened the economy to greater foreign competition, adding pressure to the import bill.

The first-quarter results could also undermine the government's latest projection of a $500 million current account deficit for the fiscal year, based on higher remittances. This projection, shared with the IMF this week, is based on the assumption that exports will remain above $34 billion and imports near $65 billion.

However, if current trends are not reversed, exports could fall below $31 billion while imports may surpass $68 billion, enough to torpedo fragile external sector stability.

Exporters argue that exchange rate rigidity is eroding competitiveness, while market analysts suspect exporters may again be holding part of their proceeds abroad. The rupee has been gradually appreciating after authorities, once again, intervened to stem its slide. The rupee-dollar parity now hovers around Rs281.

Under the IMF programme, the government has committed to cutting import taxes by 52% over a period of five years, with the first phase implemented in July. However, trade liberalisation is not yet supported by an increase in exports, putting the external sector under pressure. Tight import controls until June had eased pressure on Pakistan's foreign exchange reserves, but unless exports recover in the coming months, the government may have to reconsider its liberalisation policy.

On a year-on-year basis, PBS data shows, exports amounted to just $2.5 billion in September, down $332 million, or 11.7%, from the same month last year. This was the second consecutive month of falling exports which could come as a big matter of concern for policymakers.

In contrast, imports grew 14% to $5.84 billion in September. This was the third consecutive month imports stayed above the $5 billion controlled threshold. In absolute terms, imports increased $718 million in a single month.

As a result, the trade deficit widened 46% to $3.3 billion last month, an increase of $1 billion. In absolute terms, there was a billion dollar increase in the trade deficit.

PBS data further showed that on a month-on-month basis, the trade deficit jumped 16.3%.