Rise Of Trade Deficit Up to 120 Percent

September 05, 2021

Pakistan’s two-month trade imbalance increased 120 percent to $7.5 billion as imports reached a new record high, while exports fell for the third month in a row, despite massive incentives to exporters and significant currency depreciation. External trade figures released over the weekend by the Pakistan Bureau of Statistics (PBS) have sunk two-month-old balance-of-payments estimations in the Annual Plan 2021-22. When the budget was announced, the government shared the plan with the parliament.

According to the national data collection agency, Pakistan’s trade deficit the difference between exports and imports increased to $7.5 billion during the July-August period of fiscal year 2021-22. The deficit was $4.1 billion, or 120 percent higher than the previous fiscal year’s comparable period. The trade deficit pattern indicates that the deficit will be far greater than the government’s target of $28.4 billion by June of next year. The two-month deficit had already reached 26% of the target.

The trade statistics were slightly worse than those shared with the media earlier this week by Adviser to the PM on Commerce Razak Dawood. According to the national data collection agency, exports increased nearly 28 percent during the July-August period of this fiscal year to $4.6 billion, up from $3.6 billion in the same period last year. Exports increased by $989 million in absolute numbers during the first two months of the current fiscal year.

The two-month exports accounted for 17% of the annual target of $26.3 billion. However, the Ministry of Commerce forecasts annual exports of $31 billion. Imports increased by 73% to $12.1 billion during the July-August period. According to the PBS, imports increased by $5.1 billion in absolute terms. The import bill for the two months was equal to 22% of the budgeted figures.

External trade projections have already become obsolete within two months, demonstrating the State Bank of Pakistan’s, Ministry of Commerce’s, and Ministry of Planning and Development’s ability to make annual budget. Last month, PM Imran Khan directed his economic program to rein in the increase in non-essential goods imports, including those of vehicles, because his government may face an uncontrollable current account deficit due to a projected record of $70 billion in imports this fiscal year.

For the reason that exports are not keeping pace with imports, rising imports would either increase resources and funds requirements or deplete official foreign exchange reserves. According to central bank projections, international remittances, and other key elements of debt-free financing, will likely increase in the single digits. According to the sources, options for reducing imports include enforcing new tariffs and non-tariff barriers. The trade deficit began to widen when the government decided to allow the economy to grow after keeping it under control for two and a half years.

Pakistan’s exports have long been around $2 billion per month, and the pattern has not significantly changed despite 39 percent currency devaluation during the Pakistan Tehreek-e-Insaf (PTI) government’s three-year tenure. Every government has given billions of rupees in tax incentives to exporters through low-interest loans, subsidized electricity and gas supply, and lower income tax rates. Exporters pay a small tax on their earnings. Nonetheless, they have ceased, and the government does not appear to be willing to reconsider its imperfect strategy of pampering a few hundred exporters.

According to the PBS, imports reached a record high of $6.5 billion last month, an increase of 95 percent or $3.14 billion. As a result, the annual trade deficit increased by 144% to $4.2 billion in August. According to the PBS, exports fell more than 4.5 percent month on month to $2.23 billion. Export receipts fell by $106 million in August when compared to the previous month. Imports increased by 15.4 percent last month to $6.5 billion. In global terms, the import bill increased by $862 million last month. As a result, the trade deficit increased by 30%, or $968 million, in August compared to July.

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