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Reducing the trade deficit

The government circles believe that recent rupee devaluation by about 9 per cent will facilitate the achievement of export target

From Shamim Ahmed Rizvi, Islamabad
Oct 23 - 29, 2000

Despite having suffered a trade deficit of $508 million during the first quarter (July-Sept) of the current fiscal year, optimism prevails in the government circles that it would be able to reduce the total trade gap for the year to 1 billion dollars.

The government seems confident that by gearing up textile exports to about 6.5 billion dollars and promoting exports of other traditional and non traditional items they would surpass the export target of 10 billion dollars while imports will be contained to about $ 11 billion.

According to the foreign trade data for the month of September, deficit in July-Sept, constituted 22.88% of total exports. This is slightly better than during the comparable period of '99, when the ratio of deficit to exports was over 25%.

The month of September, registered a startling increase of over 67% in trade deficit, as compared to September, '99. Within the month of September, the trade deficit stood at $185.83m. However when compared with August, the trade gap narrowed by 2.38%. Further analysis of the deficit shows that in each month, the country has undergone on average a deficit of about 170m in the current year so far.

The data shows the exports continued to lag behind the target. In the last three months, merchandise exports amounted to $2.22b, equivalent to 22.22% of the target of ten billion dollars for the whole year. According to the target, exports should have been at least of $.2.25bn. The performance of exports in the first quarter means that in order to meet the whole-year target, the exports would have to be raised to $7.78bn by next June. On the positive side, exports had convered only 20.42% of the target ($9.5bn) in the first quarter of 1999-2000.

Another improvement over the previous year is increase in the proportion of imports covered by exports in the last three months. This year, exports formed 81.38% of imports, as compared to 79.96% in the corresponding period of '99. During September, exports totalled $764.64m. 3.11% less than in August. Imports during September stood at $950.47m.

The government circles believe that recent rupee devaluation by about 9 per cent will facilitate the achievement of export target for the current year. Even otherwise the textile vision and leather vision 2000 are tailored in that direction. Devaluation would discourage unnecessary imports and recent decision to open letter of credit with 30 per cent margin would further facilitate government programme to cut down imports specially of the consumption nature.

The imports during fiscal year 1999-2000 totalled $10.18 billion as against that of $9.43 billion of imports in the year 1998-99 recording a surge by 8.7%. In order to reduce trade gap, there is need to minimise imports and increase exports.

The policy of the government to increase export of non-conventional items is a right step in this direction. In 1998-99, Pakistan spent $223 million on import of tea, $824 million on edible oils, $36 million on import of milk and milk products.

In 1996-97, the country increased Rs. 431 million on import of cosmetics and Rs. 383 million on the import of betal leaves despite the fact that dependence on import of milk powder, tea, betal leaves and cosmetics can be dispensed with either through harnessing local resources or reducing consumption.

Interestingly, Thailand banned use of betal leaf and nut chewing in 1930 with single order. It is heartening to learn from the press that local cultivation of tea is receiving particular attention to reduce imports and save foreign exchange.

Tea cultivation project is being run by National Tea Research Institute (RTRI) and Lever Brothers Pakistan Limited which may not yield beyond 30,000 kg of tea per annum, thought not to be sufficient even to meet requirements of a small town with population of about 30,000. The PARC started tea cultivation in Shinkiari in 1980. In 1986, it acquired 50 acres of land in the area to set up a Tea Research Station where tea was cultivated on around 35 acres. The Pakistan Tea Research Institute, Mansehra, has also decided to enhance the area under tea cultivation to about 2,200 acres to achieve self-sufficiency in the commodity.

The Lever Brothers started tea cultivation project at Achrian in Mansehra district formally in 1988 and locals started cultivation in their fields in 1999. The project aims at bringing 1,500 acres of land under tea cultivation by 2005. The efforts in local cultivation of tea would hopefully reduce the need to import tea and save valuable foreign exchange.

There is a need to further reduce the import of edible oil. During year 1998-99, edible oil worth $824 million was imported, whereas it was reduced to $454 million in 1999-2000. It is projected to import edible oil worth $483 million which would include $309 million on import of palm oil and $174 million on import of soybean oil.

The Pakistan Oil Seed Development Board has done commendable job in encouraging mass cultivation of canola seed. There is also need to ensure mass cultivation of soybean so that import of its oil and meal to be used in poultry feed is reduced and foreign exchange is saved. The poultry industry in Pakistan has now total investment of Rs. 32 billion and is poised to grow further at modest rate of 10% per annum. Presently, poultry industry is in dire need of one million metric tons of soybean meal for inclusion at rate of 10% in poultry feed.

The poultry industry's total requirements are being met from imports from India. It would be appropriate if local cultivation of soybean is launched with highyield improved seed so that besides oil extraction, soybean meal is also produced locally to meet requirements of poultry industry. The adhoc arrangements may provide immediate relief but a strategy on permanent basis is crucial.