ISLAMABAD: Pakistan’s trade deficit widened 16% to $14.1 billion from July through February on the back of a fall in exports and persistent growth in imports amid concerns that the exports may further plunge due to appreciation of the local currency against the Euro.
Exports contracted 4.9% in July-February period of current fiscal year, totalling $16.01 billion, showed figures released by the Pakistan Bureau of Statistics (PBS) on Tuesday. The receipts were $828 million less than the exports made in the same period of previous year.
Contrary to the decline in exports, the import bill rose to $30.6 billion, an increase of $1.2 billion or 4% over imports in the first eight months of the previous fiscal year. This caused a trade deficit of $14.6 billion or 15.94% in the first eight months, showed the data.
The weakening exports reflect the impact of the domestic energy crisis and a slowing global economy, factors that have reduced the country’s chances of building foreign currency reserves through non-debt creating instruments.
A latest phenomenon is appreciation of the local currency against the common currency of the European Union. The rupee-euro parity has come down to Rs109.335 in the interbank, from July 2014 level of Rs132.408 to one Euro, an appreciation of 17.4% till March 10.
The European Union is one of the country’s largest trading partners and Islamabad is currently availing a ten-year duty-free access to the EU market. Any change in value of the currency may affect the export prospects, said experts.
Mirza Ikhtiar Beg, one of the leading exporters of the country, says that appreciation of rupee against euro may not carry serious implications, as all the letter of credits are not opened in Euro. He, however, said that it would be premature to make any assessment at this stage.
The Ministry of Commerce has yet to find out the impact of a depreciating European currency on the country’s exports.
The trend of a widening trade deficit suggests that the current account deficit – the gap between external receipts and payments – would be far higher than the budgeted number of $2.8 billion or 1.1% of the Gross Domestic Product.
The national planners have projected a 5.8% growth in exports and 6.2% growth in imports for the current fiscal year. The government has projected that imports in the current fiscal will increase to $44.2 billion as against $26.99 billion exports, showing a trade deficit of $17.2 billion.
On a yearly basis, the exports again started plunging in February after a brief respite in January. According to the PBS, Pakistan’s trade deficit widened almost 2% to $1.46 billion in February over the same month of the last year.
In February, the country shipped $1.9 billion goods, which were 12.9% or $279 million less than the exports made in the comparative month. The imports stood at $3.4 billion last month, which were $251 million or 7% less than the imports in the comparative period of the previous year.
On a monthly basis, the trade deficit in February widened 48.4% over January on back of almost one-tenth expansion in imports as compared to 8.7% contraction in exports, data from PBS showed.
Published in The Express Tribune, March 11th, 2015.