Trade deficit narrows to $24 billion, $10 billion more than IMF forecast
Islamabad:
Pakistan surpassed its annual export target, helping contain its trade deficit to $24 billion in the just-ended fiscal year, about $10 billion lower than the International Monetary Fund’s (IMF) initial projection. The trade deficit — the difference between exports and imports — fell 12.3 percent, or $3.4 billion, from the previous fiscal year, according to figures released by the Pakistan Bureau of Statistics (PBS) on Tuesday.
The $24 billion trade deficit is significantly lower than the Finance Ministry and IMF projections. Pakistan has managed to contain the deficit by maintaining healthy export momentum while curbing imports, which grew by more than 10 percent last year. The trade deficit is $4.5 billion lower than the government’s projection and nearly $10 billion lower than the IMF’s projection of a $34 billion trade deficit in the last Stand-By Agreement negotiations. This higher deficit projection has increased the need for external financing.
The current account deficit is also expected to be much lower than the IMF projected, with the central bank due to release its figures next week. The IMF’s trade deficit figure is nearly 29% below target compared to its original forecast, raising questions about the accuracy and motivations of its projections.
Imports last fiscal year totaled $54.7 billion, down $464 million, or 1 percent, according to the PBS. The actual figure was $10 billion less than the IMF’s forecast last June, released in a staff-level report after the approval of the Stand-By Arrangement. The government estimated imports at $58.7 billion in its initial budget but later lowered that figure to $52 billion.
Despite the bumper domestic harvest, imports would have been $1 billion less if the caretaker government had not allowed the import of unnecessary wheat. This decision resulted in a $1 billion expenditure and an oversupply of the domestic market, forcing farmers to store their produce or sell it below the cost of production.
In the next IMF package, Pakistan will have to lift import restrictions and may require significant external financing. PBS said exports last fiscal year totaled $30.6 billion, up $2.9 billion or 10.5 percent, exceeding the government’s annual export target of $30.1 billion. Rice exports contributed significantly to exceeding this target.
However, exporters have not been able to fully utilize the weak rupee to boost exports, partly due to rising energy prices. The government is now bringing exporters under the normal income tax regime. Last month, the prime minister announced a Rs 2,000 billion industry package that would cut industrial power prices by Rs 10.69 per unit, but the IMF is yet to approve the package.
Though above the annual target, monthly exports struggled to maintain the high level of $2.8 billion reached in May. On a monthly basis, exports fell 19% to $2.5 billion, widening the trade deficit, according to PBS data. Exports rose to $2.8 billion in the previous month, before dropping back to around $2.5 billion.
Imports were stable at $4.9 billion last month. The trade deficit in June was $2.4 billion, up 31% from a year ago. On a year-on-year basis, exports in June were $2.5 billion, up 7.3% from a year ago. Imports were $4.9 billion last month, up $730 million, or 17.5%.
Pakistan’s normal monthly import bill ranges between $5.5 billion and $6.5 billion but has been reduced due to foreign exchange shortage. The Federal Board of Revenue has a revenue target of $5.5 billion in monthly import bills. As monthly import bill averaged $4.6 billion last fiscal year, the Customs Department had a shortfall of over Rs220 billion, leading to lower sales tax collection at the import level.
