Trade deficit widens 29pc to $15bn, pressure on reserves to persist
Pakistan’s trade deficit widened to $15 billion in the first five months of fiscal year 2018, suggesting that International Monetary Fund’s (IMF) apprehensions over the external sector are not baseless.
Trade results of the first five months have made this year’s $25.7-billion annual trade deficit target irrelevant, but the finance ministry is still not in the mood to portray the real picture of the external sector to the IMF.
The value of goods imported exceeded the value of those exported by $15.03 billion in July-November, reported the Pakistan Bureau of Statistics on Monday. Trade deficit during the first five months of the fiscal year was $3.33 billion or 28.6% higher than the same period of last year, said the national statistics agency.
Exports in July-November period increased by 10.5% to over $9 billion but these were only equal to 39% of the annual export target of $23.1 billion. In absolute terms, export receipts were up by $857 million during the first five months.
The value of imports stood at $24.1 billon, which was 21.12% or $4.2 billion higher than the import bill booked during the first five months of last fiscal year. The five-month import bill was nearly half of the annual target.
Export receipts were 266% less than the import bill in the first five months. The higher trade deficit is on an already higher base, as Pakistan had closed the last fiscal year at a record $32.4-billion deficit.
The trade deficit in the first five months was equal to 58.5% of the government’s annual target of $25.7 billion, indicating that this year the current account deficit would remain far higher than official projections of $9 billion.
A higher-than-officially projected current account deficit will have a direct bearing on the official foreign currency reserves, which are on the sliding path. Excluding its short-term obligations, the central bank’s net reserves are not more than $5 billion, although gross official reserves stand at $15.1 billion. The latest trade figures also affirm apprehensions of the IMF which were expressed during the ongoing Post Programme Monitoring talks.
The talks began last week and would continue for next couple of days aimed at assessing Pakistan’s ability to return the $6.1-billion IMF loan.
During the talks, the IMF showed serious reservations over the health of the country’s external sector, said sources in the finance ministry. They said that the IMF was sceptical about the government’s claim that the financing gap was around $6 billion. The finance ministry is claiming that the imports would grow in single digit but the IMF believes that the growth would be in double-digits, said the sources.
Independent economists say that Pakistan will require about $20 billion to $25 billion in the current fiscal year to meet its external financing needs, although the finance ministry has lately put the figure at $18 billion including debt repayment obligations.
The IMF also disapproved of the government’s policy to keep the rupee overvalued, which finally led to the depreciation of the Pak-rupee against the US dollar. The rupee traded over Rs110 to a dollar in the interbank market on Monday.
Prime Minister Shahid Khaqan Abbasi has decided to depreciate the rupee, asking the central bank to let it settle around Rs110 to Rs111 to a dollar, said the officials. The IMF termed the first-day depreciation of 1.4% too little too late, said the officials.
LPG market regulation to resolve price hike challenge
The liquefied petroleum gas (LPG) policy could not be streamlined over the past few decades. There has been stranglehold of the powerful people who earned unlearnt income due to a constrained supply situation.
In this article, we will talk about some possible solutions which could help resolve the prevalent issues.
LPG quotas have been used frequently to bribe or please powerful interests and individuals. Alternatively, LPG quotas have been sold by competent authorities to market intermediaries.
Both sincere and half-hearted attempts have been made to solve the problems, but no meaningful effect has emerged.
Present government theoretically eliminated the quota system and authorised LPG producers like refineries and oil and gas exploration and production companies such as Pakistan Petroleum Limited (PPL) and Oil and Gas Development Company (OGDC) to sell LPG independently to those who gave the higher price.
There is a limit, however, to which LPG prices could be increased as all producers are in the public sector. LPG is used by the poor and people living in northern areas for domestic heating purposes. Resultantly, the policy is a mixed and confused one.
The net situation is that only 20% of LPG (cylinder filling) companies out of a total of 104 manage to receive supplies from the producers and the remaining 80% are probably buying from the 20%, which adds to the selling price.
The capitalist solution is to auction the LPG and sell to the highest bidder, which is likely to push prices up. As demand is normally higher, especially in winters, LPG prices skyrocket in this season, particularly in the northern areas.
The Ministry of Petroleum and Natural Resources allows imports to deal with the situation and keep the prices under control. Also, the under-supplied 80% of companies get a chance to come into action during winters by getting imported supplies.
The association of LPG distributors is protesting these days as reportedly some curbs have been put on LPG imports. As natural gas supplies have improved due to liquefied natural gas (LNG) imports, the LPG demand is expected to be lesser in the coming month.
Import curbs are going to affect the business of 80% of companies which do not benefit from direct LPG supplies. The rent income of 20% of LPG companies may also go down due to lesser demand. It is being alleged that LPG curbs are meant to profit this group of 20% companies.
This problematic situation has provided corruption opportunities for the dishonest management and executives of public sector LPG producing companies.
For the honest ones, it has created major difficulties and problems of dealing with the powerful who create all kinds of pressure from politically, administratively and socially powerful persons at all levels of the hierarchy.
Pak has attractive investment avenues
A delegation of French parliamentarians has found attractive investment opportunities for foreign businessmen in Pakistan as the South Asian country has a huge untapped economic potential.
“Back in France, we would be Pakistan’s ambassadors as it has a huge untapped economic potential and perfect geographical location,” said members of the parliamentary delegation while visiting the Lahore Chamber of Commerce and Industry (LCCI).
They emphasised that France valued high its relations with Pakistan and was keen to further strengthen economic ties as Pakistan was an important country of the region.
They underlined the need for close contacts between businessmen through the use of modern technology like video conferencing in order to develop deep and lasting linkages and networks for sharing each other’s experiences.
The parliamentarians gave assurances to the businessmen that they would play their role in increasing bilateral trade between the two countries. LCCI President Malik Tahir Javaid appreciated the initiative taken by the leadership of the France-Pakistan Friendship Group, which was on a visit to Pakistan to promote two-way trade and investment.
France is western Europe’s largest country by area. Including overseas regions, it ranks 41st in size in the world. Being Europe’s third largest economy, its nominal gross domestic product (GDP) is the seventh largest in the world at more than $2.4 trillion.
“Unlike past, the democratic set-up in Pakistan faced highs and lows in a sensible way. Pakistan is all set to gain further political stability in the years to come. We hope we will soon start reaping fruits of political maturity,” Javaid said.
While highlighting trade figures, he said in 2015, the total volume of bilateral trade stood at $778 million which surged to $817 million in 2016. The main reason for the increase was a consistent rise in both imports and exports to France.
Gas supply suspension to push up production cost
Textile exporters have resented what they say is an unfair suspension of natural gas supply to the export-focused industry in Punjab, terming the move counterproductive.
“Provision of high-priced re-gasified liquefied natural gas (in place of domestically produced natural gas) will further add to the production cost and hamper export growth,” said Pakistan Textile Exporters Association (PTEA) Chairman Shaiq Jawed in a statement on Tuesday.
Calling the curtailment of 28% gas supply a unilateral decision, he decried that the Punjab textile industry was already facing a serious blow due to high cost of doing business and comparative disadvantage in the region.
With the suspension in natural gas supply, the exporters are compelled to consume the high-priced RLNG at Rs1,100 per million British thermal units. They were earlier using a blend of 28% natural gas and 72% RLNG, but from December 7, Sui Northern Gas Pipelines stopped the supply domestic natural gas and shifted the industries entirely on to RLNG.
In order to arrest the production cost and address disparity in gas tariff in the country, the government had continued to provide natural gas under a quota system in previous winters.
At a time when industrial production and exports were on the rise, Jawed feared, the absence of cheaper gas would reverse the pace of growth.
The Punjab industry predominantly relies on natural gas for its captive power plants as well as the manufacturing process, but the switch to RLNG will negatively impact the production cost.
“The export sector being the lifeline of national economy is very sensitive and any disruption or bottleneck in the way of facilitation not only hurts exports, but also have a devastating impact on the industry, causing productivity loss, job losses and industrial unrest,” Jawed cautioned.
Separately, PTEA Vice Chairman Ammar Saeed suggested that the government should frame a comprehensive strategy to counter the high energy tariffs in an effort to gain competitive edge in the international market and to accelerate the pace of industrial production and exports.
Govt will soon introduce 5g services for the public’
The government will soon be launching 5-G mobile broadband technology for commercial purposes, said Minister for Interior Ahsan Iqbal on Tuesday.
Addressing a seminar on “China-Pakistan Economic Corridor Business Opportunities”, organised by the Federal Ministry of Planning and Development, he said that the government is committed to technology-induced development across the country. “It is in the very spirit that 5-G technology will soon be readily available to the people.” Iqbal, who is also the planning minister, said that the China-Pakistan Economic Corridor project itself is in accordance with the vision of technology-induced development. Emphasising that CPEC is a massive project, he said that political stability in the country and continuity of policies will very soon turn Pakistan into a global hub of economic, financial and commercial activities.
Talking about Gwadar, the minister said that the importance of the world-class sea port for the region itself cannot be ignored and as an integral component of CPEC it will help connect different regions and contribute towards development in Asia as a whole.
Sartaj confident of Pakistan’s economic standing
Planning Commission Deputy Chairman Sartaj Aziz said on Tuesday that international ratings agencies are optimistic about Pakistan’s economic performance and are predicting the country will emerge as one of the fastest growing economies in the world in coming years.
He expressed these views while addressing a conference on “Redefining prosperity paths in a changing global economy: opportunities and challenges for Pakistan” organised by the Pakistan Society of Development Economists (PSDE).
Aziz said that Pakistan’s real GDP growth was 5.3% in 2016-17 which is the highest rate in the last nine years due to improvements in energy supply and the security situation, two key bottlenecks which were holding back economic growth.
“Pakistan’s economy has seen a noticeable turnaround in the last four years as a result of cumulative impact of macroeconomic and structural reforms,” Aziz stated, adding that Pakistan successfully executed a $1-billion Sukuk and $1.5-billion Eurobond at relatively low yields of 5.625% and 6.875%, respectively, which reflects the confidence of global investors in Pakistan’s economy.
In redefining paths for the future, the deputy chairman said it is important to carefully analyse the dramatic changes that are taking place in the global economy as economic dynamism has shifted from advanced economies to emerging markets.
Quoting the example of the Chinese economy, he said China is re-balancing its economy from manufacturing to services, investments to consumption and from exports to domestic services which means slower but more sustainable growth for the close neighbour.