Trade deficit widens by 10.64pc in 8MFY21

ISLAMABAD: Pakistan’s trade deficit posted double-digit growth as it widened by 10.64 per cent to $17.54 billion in the eight months of 2020-21 (8MFY21) from $15.85bn over the corresponding period last year, Pakis­tan Bureau of Statistics (PBS) data showed on Wednesday.

The trade gap has been widening since Dec 2020. In February, it swelled by 23.93pc to $2.52bn as against $2.03bn over the corresponding month of last year. However, it declined by 5.87pc on a month-on-month basis.

The surge in trade deficit is mainly led by growth in imports with declining exports in February 2021.

Adviser on Commerce Razak Dawood took to Twitter to justify the rise in the import bill.

He said Ministry of Commerce (MOC) has conducted a preliminary analysis of this increase in import. It has transpired that most of this growth came from an increase in import of raw materials and Intermediate Goods, which increased by 7.8pc. He further said the import of Capital Goods declined by 0.2pc, while that of consumer goods decreased by 7.3pc.

“This shows that the Make-in-Pakistan Policy of the MOC is delivering dividends and industrial activity in the country is increasing,” the adviser claimed.

Mr Dawood went on to say that the import bill this year also increased as Pakistan had to import wheat and sugar to stabilise the market prices. Cotton was also imported to help the export-oriented industry so that exports are not hampered.

During Jul-Feb 2021, the import of wheat amounted to $909m, sugar $126m and cotton $913m. The cumulative import bill of the three products in the eight months stood at $1.948billion.

In FY20, the country’s trade deficit had narrowed to $23.099 billion from $31.820bn.

It is believed that large-scale manufacturing sector will grow further in the coming months in the wake of an increase in raw materials imports.

A drop in exports in the coming months will place the incumbent government in real trouble on the external side. However, the growth in remittances at the movement will be sufficient to finance the import bill.

Unofficially, it is believed that the current account deficit in FY21 will remain in the range of $4bn to $6bn by end of June.

According to the PBS data, the import value in 8MFY21 rose 7.49pc to $33.840bn as against $31.483bn in the corresponding period last year. In February, the import value was recorded at $4.566bn as against $4.168bn in the same month last year, a growth of 9.55pc. The import bill declined by 5.27pc on a month-on-month basis.

In FY20, the import bill witnessed a steep decline of $10.29bn, or 18.78pc, to $44.509bn, compared to $54.799bn in the preceding year.

The continuous decline in imports in the last two years had provided some breathing space to the government in managing external accounts despite a downward trend in exports. However, rebounding imports are likely to create pressures on the external side.

Exports fell year-on-year 4.12pc to $2.049bn in February from $2.137bn.

In 8MFY21, export proceeds rose 4.29pc to $16.304bn as against $15.633bn in corresponding period last year.

Cotton yarn shortage

Prime Minister Imran Khan expressed concern over shortage and escalating cotton yarn prices in a meeting with Commerce Adviser Razak Dawood on Wednesday.

The prime minister instructed for necessary measures, including cross-border trade of cotton yarn, to keep the momentum of value-added exports. Allowing imports of cotton yarn from India under cross-border will be the first step towards the revival of trade relations with New Delhi.

Pakistan has already allowed imports of pharmaceutical products from India.

The meeting was convened a day after a statement issued by value-added textile sector asking the government to allow duty-free import of cotton yarn from all over the world, including India. On Dec 23, 2020, the government had removed regulatory duty, but cotton yarn imports are still subject to custom duty and other taxes.

The stakeholders had warned that export orders in hand will eventually be diverted to rival countries if the cotton yarn is not made available in the required quantity.