July-March: Trade deficit at $13.9b, leaves behind IMF estimate

May dampen positive impact of $2 billion worth of Eurobonds.

Shahbaz Rana April 10, 2014
The amount required to finance the deficit could take a toll on the country’s foreign currency reserves as the IMF assessed this year’s financing requirement for Pakistan on the basis of a smaller deficit. CREATIVE COMMONS

ISLAMABAD: Pakistan’s trade deficit swelled to about $14 billion in the first nine months of the current fiscal year, which was $1.5 billion higher than the International Monetary Fund’s (IMF) projection and may largely neutralise the positive impact of $2 billion Eurobonds on foreign currency reserves.

Figures released by the Pakistan Bureau of Statistics (PBS) on Thursday showed that the trade deficit – difference between the value of exports and imports – touched $13.93 billion in July to March of fiscal year 2013-14.

However, it was $809 million or 5.5% less than the gap recorded in the corresponding period of previous fiscal year.

The amount required to finance the deficit could take a toll on the country’s foreign currency reserves as the IMF assessed this year’s financing requirement for Pakistan on the basis of a smaller deficit.

The lender estimated a trade deficit of $12.4 billion for the first nine months and for the full year it put the shortfall at $16.3 billion.

Setting this as a base, the IMF assessed that Pakistan would require $7.7 billion in external funds and the country also needed to raise foreign exchange reserves to $9.4 billion.

Pakistan’s imports during the nine-month period were nowhere near the IMF’s projection, though exports were close to the forecast.

In an effort to strengthen its foreign currency reserves, the government on Wednesday raised $2 billion from the international debt market at very high prices. The interest rates that it agreed to pay were 5.6% above the US treasury rates.

Analysts fear that the positive impact of $2 billion on the foreign currency reserves could be largely eroded because of higher than estimated trade deficit.

The widening trade gap would have a direct bearing on the current account deficit, which would be bridged with the help of foreign currency reserves held by the State Bank of Pakistan, they added.

For July-March 2013-14, import payments amounted to $33.1 billion, which were $282 million or 0.86% higher than the same period of previous year, according to the PBS. However, imports were $1.5 billion higher than the IMF’s estimate.

Exports in the nine-month period stood at $19.1 billion compared to $18.1 billion in the previous year, recording a growth of 6.1% or $1 billion. The IMF too assessed exports at $19.12 billion.

This year, the government is striving to step up exports to $26.6 billion and keep imports at $43.3 billion, a gap of $16.7 billion.

On a month-on-month basis, exports grew to $2.26 billion in March, $96 million or 4.5% higher than February’s shipments.

Trade deficit in March over February contracted 4.6% to $1.36 billion due to almost negligible growth in imports that stood at $3.63 billion.

On a yearly basis, the trade gap was lower by 12% at $1.36 billion against March last year, said the PBS.

In March, imports stood at $3.6 billion, which were 1.6% or $57 million less than imports made in the corresponding month of previous year.

Published in The Express Tribune, April 11th, 2014.

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MK | 7 years ago | Reply

@Aam Aadmi: Given the strain on Foreign Exchange reserve, the Govt raised $2 billion from abroad, this increased the reserve but because imports are high this time around this means more dollar will be paid out to outside vendors, thus negating the effect of the $2 billion raised. This means Pakistan is where it was earlier except now it also has interest burden upon it from the 2 billion raised from abroad. So not good in short term , however one has to look at these things in long term perspective, where there are some positives such as more imports imply consumption of goods is stable in economy. Exports have risen which is always good. Foreign investors agreed to give 2 billion dollars that is a sign of recovery. There is no quick fix and situation will continue to remain grim in the foreseeable future.

Random Passerby | 7 years ago | Reply

@Fahad Khan: Same news reported by Dawn has the title "Trade deficit shrinks".

ET business pages have this uncanny ability of putting a negative spin on every report about Pakistan's economy.

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