Trade imbalance: Deficit in line with IMF trade projections

Published: October 11, 2013
Email
MoM growth in exports in September was five times the size of the growth in imports for the same period. CREATIVE COMMONS

MoM growth in exports in September was five times the size of the growth in imports for the same period. CREATIVE COMMONS

ISLAMABAD: 

Pakistan’s trade deficit contracted for the second time in a row, coming down to $4.5 billion in the first quarter of the fiscal year due to faster pace of growth in exports outpacing anemic imports. The quarterly results remained largely in line with projections made by the International Monetary Fund (IMF).

The continuous slowing down of imports allowed some breathing space to economic managers who are struggling to cope with the challenge of building foreign currency reserves, but highlight structural faults in the economy. Independent economists argue that a developing country like Pakistan should post a manageable trade deficit− a sign of a growing economy.

The latest data released by the Pakistan Bureau of Statistics (PBS) on Thursday showed that exports grew by 9.3% from July-September 2013 to $6.7 billion; $567 million higher than the total value of goods exported in the corresponding three months of the previous fiscal year. Imports during the period grew by about 3% to $11.2 billion; $324 million higher when compared to the corresponding period of the previous fiscal year.

The trade deficit contracted by 5.2% in the first three months of fiscal 2014. The deficit clocked in at $4.5 billion, lower by $243 million recorded in the corresponding three months a year ago.

As the country is practically under the IMF radar, its indicators are scrutinised on the parameters set by the IMF and projections are worked out by the IMF staff to set the annual current account deficit target. The first quarter’s results remained largely in line with previous projections by the IMF.

The Fund projected exports to grow to $6.4 billion in the first quarter and imports to increase to $10.8 billion. The IMF had projected a trade deficit of $3.9 billion. The actual deficit remained $561 million higher than the Fund’s projection.

However, workers’ remittances in the first quarter grew by 9% to $3.9 billion, which were $415 million higher than the IMF’s projections. This has neutralised the impact of larger than anticipated trade deficit on the overall current account deficit projections.

For the current fiscal year the IMF has assessed that the country’s total exports will grow by 11.4%, while the growth in imports will remain at 7%. On this basis, combined with healthy projections in remittances growth, both stakeholders have worked out a current account deficit of just 0.6% of the gross domestic product.

If the current account deficit widens more than the projected level, it will create problems for the State Bank of Pakistan in fulfilling its commitments to the IMF. The central bank will face problems in maintaining foreign currency reserves on previously agreed levels, in addition to achieving quarterly targets for net foreign assets.

On a yearly-basis, exports markedly grew by 19.3% in September over the same month in the previous year, while imports grew 8.2%. Resultantly, the trade deficit contracted by 10.5%, according to the PBS.

Monthly trade statistics depicted that the deficit contracted by 25.8% month-on-month in September due to an impressive 31.4% growth in exports: five times the size of the growth in imports.

As against about $2 billion worth of exports in August this year, exports increased to $2.6 billion in September, higher by $626 million in a single month. The imports bill in September recorded at $3.8 billion as against $3.6 billion in the previous month. The monthly trade deficit stood at $1.2 billion as against $1.6 billion registered in the previous month.

Published in The Express Tribune, October 11th, 2013.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

Facebook Conversations

Reader Comments (1)

  • Oct 11, 2013 - 5:25PM

    Any improvement in current account deficit will reflect in appreciation of rupee against dollar.

    Recommend

More in Business