First-half: Trade gap shrinks as imports slow down

Deficit stands at $9.1b, about a billion dollars more than IMF estimate.

ISLAMABAD: Pakistan’s trade deficit contracted about one-tenth to $9.1 billion in the first half of the current fiscal year on the back of falling imports, but it still stood over a billion dollars more than the International Monetary Fund’s (IMF) original projection.

The wide gap between the actual trade deficit and the IMF’s original projection indicates the lack of accurate estimates of the IMF and the Pakistani negotiating team, putting foreign currency reserves under pressure.

The deficit – the gap between imports and exports – stood at $9.1 billion in July-December 2013, showed figures released by the Pakistan Bureau of Statistics on Wednesday. In the comparative period of previous year, the deficit was $9.9 billion.



Import payments in the period under review were $21.7 billion compared to $21.9 billion the previous year, recording a decline of 1.2%. Exports, however, rose to $12.7 billion compared to $12 billion a year earlier, an increase of 5.1%.

Despite the narrowing deficit, which according to economists reflects signs of economic slowdown, the country’s balance of payments woes would not ease.

The trade gap was $1.1 billion wider than the IMF projections made at the time of finalising a $6.7-billion loan programme.

Exports were $501 million less than the IMF’s estimates while imports were $550 million higher than projections. Because of this situation, coupled with slowdown in grant of foreign loans, the country’s foreign currency reserves were at a lower level at $3.2 billion in early January.

During meetings relating to the first review of the loan programme in November, the IMF revised its trade projections for Pakistan. It estimated first-half trade deficit at $8.8 billion, but this too was $300 million lower than the actual deficit.



It revised downward the estimate for export growth at 8.5%, but jacked up import growth to 8%. Annual trade deficit will be $16.5 billion, higher by $1.54 billion over original projection.

According to analysts having insight into IMF working, the staff of the multilateral lender had deliberately painted a rosy picture of trade statistics in an attempt to justify the $6.7-billion loan programme in its executive board meeting. However, many believed that the amount was far less than the requirement for easing the pressure on balance of payments.

In December alone, the trade deficit shrank almost 25%, according to the PBS. Compared to the deficit of $1.7 billion in December 2012, the gap reduced to $1.3 billion last month.

In December, imports stood at $3.6 billion, which were about 3% less than the imports made in the same month of previous year. Exports saw a phenomenal growth of 15.5% totalling $2.3 billion against $1.7 billion a year earlier.

On a month-on-month basis, the deficit in December contracted 30% over November, largely on the back of 26% rise in exports.

Published in The Express Tribune, January 16^th, 2014.

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