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As imports grow, Pakistan’s foreign trade deficit widens

As imports continue to grow in terms of volume and higher costs, Pakistan’s foreign trade deficit has widened, but there is stopping of business. While this is good news for Pakistan’s trading partners, especially those exporting to this country, it should worries to the economic managers.

The trade deficit widened to $16.095 billion during July-March, the first nine months of FY-2012 — crossing the projection of $14.5 billion. Even if the deficit had stayed back at its target level, it should be worrisome to the present government, which is facing a tough time now when the national budget for FY-2013 is due to be unveiled on May 25. The new fiscal starts on July 1. Unveiling the foreign trade volumes and the external balances, Federal Bureau of Statistics (FBS) attributed to widening deficit to “declining exports and increasing imports”.

“It is expected that the trade deficit will reach an unsustainable level by June 30, when the current fiscal ends,” warned FBS. The deficit in the like nine months of FY-2011 was $11.289 billion.

The exports during this period totalled $17.190 billion as against $17.727 billion in the like period of FY-2011. It shows an export decline of 3.03 per cent this year. March proved to be very bad month for exports as it registered a decline of 18.76 per cent as compared to March FY-2011. With just four months to go to the end of FY-2012 there is a big question mark over the achieving the whole year target of $26.7 billion. Officials say it is being reduced to $24.7 billion. It is attributed to the EU slowdown and domestic energy crisis. Pakistan is incurring a loss of $4 billion a year, eroding the GDP by two per cent due to the energy crisis. However, the overall impact of the crisis may be somewhat softened as EU has just allowed duty free access to 75 Pakistani textiles.

Imports totalled $33.285 billion during July-March period, up from $29.016 billion in the like period of FY-2011, indicating an increase of 14.71 per cent. Imports in March rose 2.34 per cent, compared to the same month of FY-2011. Imports are rising in the wake of an increase in prices of imported crude oil, which is crossed the level of $120 a barrel. Other imports including food and commodities, too, are costing more this year.

The IMF and State Bank of Pakistan have clearly expressed their concern over the widening trade deficit and pressure ion external balances. The rupee depreciated at least five per cent against the greenback and other hard currencies during this year.

Should Pakistan expect any major aid inflows this year, as the traditional donor countries themselves are not feeling financially comfortable?

On the top of it, Pakistan has started repaying instalments of $11.0 billion credit it received three years ago under the IMF Stand By Arrangements. The first instalment of nearly $400 million was transmitted in February. Repayment of more installments is due in FY-2012 and FY-2013.

Once again the saving grace of Pakistani external balances and inflows is the home remittances sent by overseas Pakistanis, including working in the UAE, GCC, Saudi Arabia, UK and US. The overseas Pakistan have remitted a $9.735 billion during July-March of FY-2012. It is a substantial growth of 21.45 per cent — $1.719 billion — over the like period of FY-2011 when the amount was $8.016 billion.

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