ISLAMABAD: The country’s trade deficit jumped a record 65% year-on-year to $39.3 billion in the 10 months to April due to higher-than-expected imports, officials revealed on Friday. Pakistan Bureau of Statistics data.

The trade deficit widened due to an unprecedented increase in imports due to a rise in global commodity prices, while exports stagnated around $2.5 billion to $2.8 billion per month, mainly those of semi-finished products and raw materials.

In April, the trade deficit stood at $3.74 billion, up about 2.7% from March and 24% from April 2021.

The trade deficit hit a record high of $37.7 billion in fiscal year 2017-18. However, government measures caused it to drop to $31.8 billion the following year (2018-19), then drop again to $23.2 billion in 2019-20.

Deficit swells 2.7% to $3.74 billion in April

However, the trend then reversed and the trade deficit jumped to $30.8 billion in the 2020-21 fiscal year and is expected to hit a record high in the current fiscal year.

Imports

In the first 10 months (July to April) of this fiscal year, the import bill rose 46.4% to $65.5 billion from $44.7 billion in the same period last year.

In April alone, the import bill rose slightly to $6.6 billion from $5.24 billion in the same month last year, reflecting an increase of around 26%. On a monthly basis, imports rose 3% in April.

A major government initiative to encourage raw material imports and rising global oil prices and strong domestic demand have pushed up the import bill.

A surge was also noted in the import of vehicles, machinery and vaccines. The government also imports wheat, sugar and expensive palm oil. In fiscal 2020-21, the import bill jumped 26% to $56 billion from $44.6 billion a year ago.

Exports

In July-April, exports jumped 25.5% to $26.2 billion from $20.9 billion in the corresponding months of last year. In April, exports rose 29.5% to $2.87 billion from $2.21 billion a year ago.

On a monthly basis, exports increased by 3.27% in April.

Export earnings rose 18% to $25.3 billion in 2020-21 from $21.4 billion last year.

The government has projected the annual export target for commodities at $31.2 billion and services at $7.5 billion.

According to the Ministry of Finance’s monthly economic update and outlook for April, “exports are expected to continue their upward trend, supported by the export-friendly policies that have been implemented.”

He said exports also benefited from the real effective exchange rate (REER), which measures the value of a currency weighted by that of its major trading partners after adjusting for inflation.

According to the report, exports of goods and services expressed in US dollars have been increasing since mid-2020. This was followed by the reopening of domestic and external economies after Covid-induced shutdowns.

With further domestic and international easing of protective measures against the pandemic, Pakistan’s exports have benefited from a largely depreciated normal effective exchange rate. It offset the differential between inflation in Pakistan and its major trading partners, according to the report.

Domestic economic expansion and the positive trend in exports, together with the historically strong surge in international commodity prices, have also driven imports on an upward trajectory since mid-2020.

The main challenge for the government is to increase the share of exports in the creation of domestic gross value added and to limit the further expansion of the share of imports to reduce the trade balance.

The tightening of monetary policy as well as the measures taken to limit unnecessary imports could correct the imbalance in the external sector in the short and medium term.

Since mid-2020, remittances have fluctuated around a monthly average of $2.5 billion. In April, remittances are expected to increase due to Eidul Fitr. However, the geopolitical risks are still not ruled out. Thus, the import of goods and services may continue to show an upward trend mainly due to rising international commodity prices, according to the report.

Considering these factors as well as its other components, the current account deficit is expected to remain around $1 billion in the coming months, he noted.

Posted in Dawn, May 7, 2022