Trade deficit shrinks amid stagnant exports

ISLAMABAD: The country’s trade deficit during first 11 months of the current fiscal year fell by 13.62 per cent to $29.207 billion compared to $33.812bn during the same period last year.

The decline in deficit comes on the back of significant fall in the country’s imports as the exports have shown no improvement from the previous fiscal year despite massive devaluation of the rupee and a range of ­subsidies and incentives offered by the government to the export-oriented sectors.

The $4.605bn decline in trade deficit during the ­July-May is expected to reach $5-6bn at the end of on­going fiscal year in July as the government’s interventions have helped curb imports of non-essential items meanwhile exports have remained unchanged.

The government has taken several measures including the imposition of regulatory duties on almost 1,900 tariff lines mostly luxury items and restricting imports of used cars in order to reverse the rising import bill to narrow the trade deficit which had risen to over $38bn during the last fiscal year.

Data for May showed the trade deficit during the month dipped by 19.31pc to $2.94bn compared to $3.644bn during the same period last fiscal year. The declining trade deficit during the month was mainly due to a 12.8pc turn down in imports which fell to $5.042bn compared to $5.782bn in the same month last year.

On a the cumulative basis, the data released by the Pakistan Bureau of Statistics (PBS) for the 11 months showed that the total value of imported goods fell by 8.74pc to $50.474bn from $55.142bn during the same period last year.

The reduction in imports of furnace oil, machinery and electric equipment, palm oil and textiles imports led to the contraction of overall imports.

According to preliminary estimates, the government is likely to achieve the import target of $56.5bn set for the current fiscal year.

With the falling global demand, weakening consumer and business sentiment among major economies, trade tensions and economic stabilisation measures at home, the imports are also expected to decrease further in the next fiscal year.

Additionally, the government has launched an import substitution drive that will be instrumental in reducing pressure on the current account.

Contrary to the reversing trend observed in imports, the government has failed to turn around the country’s abysmal export performance during the period under review.

As per the data released by the PBS, total export proceeds during the 11 months fell by 0.3pc to $19.164bn compared to $19.09bn during the same period last year.

On a monthly basis, export proceeds during May dipped by 1.72pc to $2.102bn, from $2.139bn in same month last year. In rupee terms, however, exports grew by 26.06pc during the period under review.

The government is unlikely to achieve the export target of $28bn set at the beginning of the fiscal year despite offering massive tax benefits to five zero-rated export oriented sectors.

The government has reasoned that the exports failed to increase because of the slowdown in economic growth in the EU along with spill over from US-China trade tensions.