ISLAMABAD: The government’s battle against bloated trade deficit is finally bearing fruit, driven primarily by a consistent fall in international oil prices, according to the Prime Minister’s Adviser on Commerce and Industry Abdul Razak Dawood.
Speaking to media personnel at the Pakistan Secretariat, he said that the import bill is likely to contract in line with the declining trend seen in the last few months shrinking the trade deficit by $1 billion year-on-year in January.
He now estimates a full year reduction in the trade deficit to be in the range of $5-6bn by June 2019. The trade deficit has been on declining trend for the past few months on the back of reduction in global commodity prices — including oil — which has remained at or below $60 per barrel since November 2018.
His remarks came on the same day that the State Bank of Pakistan in its report said that first quarter imports of energy (oil and gas) soared “past the $4bn mark for the first time since Q1 FY15” on the back of high international prices prior to the month of November.
Low oil prices are the primary cause; next budget might see duty reductions on iron and steel
“This [increase] offset much of the gains from a decline in non-energy imports, continued growth in exports, and a healthy uptick in workers’ remittances,” the SBP highlighted. The decline in oil prices that began in November is finally beginning to show up on the economy’s external account.
The adviser said that he was not happy with the pace of compression in imports thus far. He said the dip in import bill is due to three factors—decline in commodity prices, reduction in oil prices and imposition of regulatory duty on luxury items.
Now, he said the government has banned import of furnace oil, the bill for which is normally in the range of around $1bn. “We have raised duty on import of non-essential items to discourage its imports”, the adviser added.
With help of these measures, he said the reserves are expected to go up and the trade deficit will shrink by June 2019. Last year, the total trade deficit touched its record high of $37bn.
Secretary Commerce Younus Dagha, who accompanied the adviser, said the import suppression was not because of regulatory duty (RD) but mainly due to reduction in oil prices. He said the RD imposed on non-essential items and restriction of imports of certain commodities was not in violation of World Trade Orgainsation rules.
He also added that the import of raw material will go up while that of finished products will drop to expand domestic production.
On exports, Dawood said that this year, proceeds will cross the $25bn mark easily. He also claimed that a stretched target of $27bn, which was projected for the current fiscal year, is unlikely to be met.
However, he failed to answer question on how the government is planning to achieve the target and to quantify the real impact of the measures taken in the recent mini-budget with respect to export promotion.
In recent past, similar questions were also asked from the commerce ministry officials at the standing committee when the issue of reduction in duty on raw materials came up for discussion and its impact on increasing exports from the country. During that hearing too, the officials failed to explain how they have quantified the impact of their measures on the trade numbers.
On the issue of industrial policy, the adviser said a draft policy is being finalised which will be shared with the commerce chambers for feedback. “We will then present in the cabinet for approval”, he said adding that the duty reduction on iron and steel sectors will be considered in the upcoming budget.
When asked about the status of additional $1bn market access to China, the adviser said that things are moving in positive direction.
However, he did not share whether it will be achieved this year or not.
The adviser said Pakistan is on track to comply with the UN conventions in compliance with the terms of the EU GSP+ scheme. “We are mostly compliant except in three areas”, the adviser said, adding “we will make progress in those areas until next review”.
He said that he was against the subsidy on export of sugar; however, he pointed out that the government has received Rs6-7bn claims of subsidy but said that the government has only allocated only Rs2bn for sugar subsidy in the budget.
Regarding Rs30-35bn export development funds stuck with the finance ministry, Dawood said that finance minister has already issued directions to work out a mechanism for settlement of these funds.
Commenting on the plan to revive Pakistan Steel Mills (PSM), the adviser said that three Chinese and three Russian companies have shown their interest to run the PSM on lease. However, he said the committee will decide future course of action in due time.