ISLAMABAD:
Pakistan’s trade deficit widened 29% to $6 billion in just two months of this fiscal year due to stagnant exports and a double-digit jump in imports, reflecting early signs of the government’s trade liberalisation policy.
The Pakistan Bureau of Statistics (PBS) said on Tuesday that the gap between imports and exports reached $6 billion during the July-August period of this fiscal year. The deficit was $1.4 billion, or 29%, more than the comparative period of the last fiscal year.
The $1.4 billion higher deficit in just two months is also much more than the $1 billion loan tranche of the International Monetary Fund (IMF). Pakistan and the IMF are starting negotiations for the tranche in the third week of this month.
Imports during the first two months of the current fiscal year reached $11.1 billion, up $1.4 billion, or 14.2%, according to the national data-collecting agency. Imports were also double the total value of exports during this period.
The PBS stated that exports remained stagnant at $5.1 billion in two months, hardly 0.7% more than the comparative period.
Pakistan’s external sector stability largely hinges upon smooth and higher inflows of foreign remittances, as exports are not picking up despite multiple initiatives that successive governments announced over time. The Planning Commission’s Uraan Pakistan and Stefen Dercon’s Economic Growth Plan have also not helped boost exports significantly.
But exporters complain that exchange rate rigidity is eroding their competitiveness. The rupee has gradually appreciated after the authorities again intervened to arrest the downward slide of the local currency.
The rupee-dollar parity closed at Rs281.72 on Tuesday, which was better than a day earlier. But during the steep decline of the rupee about two years ago, exporters could not take advantage of the situation, and exports remained stuck at around $2.5 billion a month.
Under the IMF programme, the government has committed to reduce import taxes by 52% over five years. Its first phase was implemented in July this year. Trade liberalisation is so far not supported by an increase in exports, which may bring the external sector under pressure.
The Ministry of Commerce and the World Bank have projected that trade liberalisation would increase exports by 14% and imports only in the range of 5% to 7% over the medium to long term.
Tight control over imports till June had decreased pressure on Pakistan’s foreign exchange reserves, but if exports do not pick up in the coming months, the government may have to review its trade liberalisation policy.
The PBS said that on a year-on-year basis, exports amounted to a mere $2.4 billion in August, which were $345 million, or 12.5%, less than the same month of the last year. The yearly contraction in exports should be a matter of concern for policymakers.
Contrary to the reduction in exports, imports grew 6.4% to $5.3 billion. It was the second consecutive month of this fiscal year when imports remained above the controlled threshold of $5 billion. In absolute terms, imports grew $319 million in a single month.
As a result, the trade deficit also widened over 30% to $2.9 billion last month. In absolute terms, there was a $664 million increase in the trade deficit. The PBS data showed that on a month-on-month basis, the trade deficit shrank 8.8%. Exports dipped 10% to $2.4 billion last month compared to July. Imports also decreased 9.4% to $5.3 billion. One reason for lower monthly imports was clearance of bulk cargoes in July, which importers had withheld in anticipation of a reduction in taxes.
The increase in imports is also reflected in monthly tax collection by the Federal Board of Revenue (FBR). The FBR has surpassed the two-month customs duty collection target. Against the target of Rs192 billion, the customs duty collection amounted to Rs204 billion with 20% growth. The growth in customs duty collection was more than the growth in the total tax collection of Rs1.66 trillion for the two-month period.
