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Trade deficit to continue

  1. Shaukat Aziz visits Karachi
  2. The increase in wheat support price
  3. Trade deficit to continue
  4. Excellence in manufacturing

It is feared that deficit may further increase by the year end close to $ 1.5 billion

From Shamim Ahmed Rizvi, Islamabad
Nov 22 - 28, 1999

As against zero trade deficit targeted by the ousted government of Nawaz Sharif for the financial year 1999-2000, statistics indicate that the country has already suffered a trade deficit of 587 million US dollars during the first four months (July-Oct 1999). Apprehensions are that deficit may further increase and the year may close with deficit exceeding 1.5 billion dollars unless some immediate measures are taken to boost exports.

The official statistics with regard to exports for the first four months of the current financial year have indicated 6.3 per cent growth to $ 2.616 billion over the comparable figures of $ 2.481 billion during the corresponding period last year. As against this, imports increased by 12.5 per cent at $ 3.202 billion resulting in the widening of the country's trade deficit by 52.5 per cent to $ 587 million for the period under review. This shows that in spite of the indirect curbs imposed on imports through cash margin conditions for the opening of L/Cs recently, imports have continued to increase with much larger proportions than those recorded by exports during the same period.

The industrial sector has repeatedly complained about the high cost of production being faced by them particularly in respect of utility charges and high mark up rates on bank borrowings including export refinance as compared to similar charges in the countries competing on the export front in textiles. At the same time comparably higher wages in Pakistan combined with the inflationary impact of rupee devaluation rather frequently in the last two years further eroded the capability of export industries in Pakistan to compete successfully in the world market. These adverse factors ultimately culminated in negative growth in export which registered a 10 per cent decline in the last financial year.

The textile quota utilisation performance for the 10-month period covering January to October 1999, as officially released by the Quota Supervisory Council also points to a disturbing trend. The over all unit price of Pakistan's textile items including readymade garments suffered declines ranging from 11 per cent to 20 per cent in terms of US dollars. The lowering of the unit prices of Pakistan's textile exports to quota countries was attributed to tough competition from Bangladesh, China and India. Mr. Bilal Mulla, Chairman Pakistan readymade garment Manufacturers and Exporters Association complained about the high cost of production in Pakistan as compared to these countries.

The problem needs to be immediately addressed in consultation with the representatives of industry and leading exporters. The minimum requirement is to achieve this year's export target of $ 10 billion. This is all the more necessary as, in view of new efforts to revive the economy, it might be very difficult to curtail imports drastically. Ever since the customs tariff was reduced to 35 per cent, imports have tended to rise sharply. Another feature of the import trade is that the bulk of it consists of essential items. For instance, in the July-October period this year, the main items of imports were petroleum and its products, palm oil, fertilizers, plastic materials, medicinal products and tea. As such the newly announced plan to curtail import of non-essential items offers little room to improve the trade balance.

Exports have stagnated at around $ 8 billion over the last five years. Numerous incentives and devaluations have failed to deliver results. All the previous claims about diversification of export goods and markets have proved hollow. The textile sector has continued to be the leader in the field with 60 per cent share in the total foreign exchange earnings from exports. With the economy in recession and industrial production plummeting, there have been no exportable surpluses. The situation has been exacerbated by inconsistency of economic policy and severe erosion of confidence.

All in all, the present state of affairs cannot be allowed to continue. The trade gap eats away Pakistan's precious foreign exchange reserves, which in turn affects the economic well-being of the country. The Finance Minister must realize that time is not on his side as he plans a strategy to narrow this yawning trade gap. It is time for the Finance Minister to put his programme into practice so that some steps are taken with a view to keeping the trade gap in check on one hand and averting any further drain on the country's meager foreign exchange reserves on the other.