Recessionary pressure: Trade deficit contracts as economic reality sets in

Economists say declining imports suggest imbalances, economic slowdown.

ISLAMABAD:

As Pakistan’s trade deficit significantly contracts, the unrelenting reality of economic slowdown becomes more visible. The deficit shrunk during the first quarter of the fiscal year due to tumbling imports and a meagre 4% growth in exports.

Experts say that the decline in imports suggested that there were imbalances in the economy and economic activities were starting to slump down. Economists treat the growth in imports in a developing economy like Pakistan as a sign of healthy economic activity.

The trade deficit – a measure of how much imports exceed exports – shrank by almost 10% to $4.7 billion from July to September 2012 (first quarter) against $5.2 billion in the corresponding period of the preceding fiscal year, according to the trade data released by Pakistan Bureau of Statistics (PBS).

The trade deficit widened to unprecedented $21.2 billion in the preceding financial year breaking the previous record of $20.9 billion posted in 2007-08 that forced the government to knock on International Monetary Fund’s (IMF) door for a bailout package of $11.3 billion to avoid default on international payments.

In the period under review, exports grew 4.3% year-on-year, as goods worth $6.2 billion were exported, increase of $253 million. On the other hand, imports plunged 2.4% to $10.9 billion, which was $264 million less than the corresponding period’s import bill.

In its latest assessment on Pakistan’s economy, the IMF revised Pakistan’s growth projection downwards to 3%–3.5% against the official target of 4.5%.

“Pakistan faces a challenging economic outlook. Gross domestic growth in 2012-13 is projected to be in the 3%-3.5% range, which needs to accelerate in order to absorb the growing labour force, the IMF said in its staff mission report earlier.

The quarterly trade figures were in line with the global projections in the sluggish economic conditions for international trade but were below the annual projections of the Planning Commission. The leading world economists have been forecasting over 3% growth in international trade. However, Pakistan’s economic managers set $25.8 billion as export target, which was $2.2 billion or 9.3% higher than the actual exports of the last fiscal year.

When analysed, the yearly trade figures were somehow surprising. In September, exports rose 21.2% year-on-year, after exports fell for consecutive two months. The country exported $2.21 billion worth of goods, $1.7 billion higher than the exports made last September, according to the PBS.

However, the Planning Commission officials said that the growth registered were actually “corrections” because of lower base of the corresponding month. They added that monthly exports of $2.2 billion were normal.

Conversely, imports were following a downward trend for the past two successive months registering a decline of 3.2% in the previous month to $3.5 billion – $116 million lower than September 2011’s figure. Resultantly, the trade deficit contracted 28.1% to $1.3 billion.

Monthly statistics

The month-on-month trade deficit depicted a contraction of 27.5% due to plummeting imports and growing exports. Exports soared 16.1% or $308 million in September over August 2012.

Published in The Express Tribune, October 12^th, 2012.