Widening trade deficit

It is time our officials wake up and try to achieve real goals instead of painting a rosy picture that does not exist

In a development that should shake the authorities out of their slumber, the trade deficit widened by 45 per cent to $6.5 billion in the first quarter of the ongoing fiscal year, due to the contraction in exports and double-digit growth of imports. The trade deficit is higher than what the IMF projected for Pakistan during this period and will also put severe pressure on our foreign exchange reserves. Additionally, gas shortage for industries, which are reporting a loss in orders due to load-shedding during winters, is not a good omen for the coming months. During the preceding three-month period, Pakistan’s import bill clocked in at $12.5 billion — an increase of 12.5 per cent over the same period in the previous year — while its exports only stood at $6 billion. Analysts have termed the widening trade deficit a result of the exchange rate rigidity. While the Pakistani rupee, according to IMF projections, should be more than Rs110 to a dollar, with its overvaluation, however, it is currently traded at around Rs102 to a dollar. Imports tend to be rising, with there also being a fall in exports.

The widening trade deficit will also cause an erosion of the central bank’s foreign currency reserves that stand at $8.882 billion, according to latest data released by the State Bank of Pakistan. If this was not enough, the IMF’s review for approving loan tranches and the possibility of it being put off again — since Pakistan seems unlikely to meet the lender’s condition of implementing the increase in power tariffs — does not augur well at all from an economic point of view. The government, with its trumpeted Vision 2025 and GSP Plus status, has been unable to translate small wins into big victories. Figures continue to be disappointing and if it were not for loans and grants by friendly countries, Pakistan would be facing a major economic catastrophe. Recent floods have not helped the country’s cause and the ongoing political unrest continues to disturb the economy. Maybe it is time our officials woke up and tried achieving real goals instead of painting a rosy picture that does not exist.

Published in The Express Tribune, October 21^st, 2014.

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