THE TRADE DEFICIT
Trade deficit soared during 2003-04, but was never out of control
From SHAMIM AHMED RIZVI
Aug 16 - 22, 2004
Both exports and imports have made landmark achievements during July 2004 — the first month of the current financial year which is normally considered a lean month. Exports rose to $ 1182.7 million and imports $ 1372 from $890 & 999.8 million during July last year respectively showing an increase of 33 percent in case of exports and 37 percent in imports.
The trade deficit widening to $ 190 million in one month (against $ 109 million in July last year) confirm the fear being expressed in the relevant circle that we are in for a still bigger trade deficit during the current financial year. During the last financial year (2003-04), the trade deficit swelled to $ 3.2 billion breaking all previous record. There are strong indication that it may surge further during the current year as the country, apart from on going items, in importing about 1.5 million tonnes of wheat to meet the likely shortage and to build up a buffer stock of about a million tonnes to meet any emergency. The rising petroleum import bill increase of higher prices in the international market may also contribute to the widening trade gap.
Policy makers were taking pride for surpassing the export target of $ 12.1 billion by about 100 million dollar showing increase about 10 percent over the last year. But the import swelled to about $ 15.5 billion (against estimated $ 12.8 billion for the year) showing an increase of about 25 percent over the last year. The consoling feature of this trend is, however, the fact that this abnormal increase has been due to import of machinery and raw material and not because of fuel oil, food items, or luxury goods. This clearly indicates that economic activity has picked up during the outgoing financial year, which is also evident from the high out part of large-scale manufacturing. However, this should also serve as a reminder that efforts must be multiplied for diversification and expansion in exports.
Responding to newsmen questions at a press conference called to highlight the export performance, Commerce Minister Humayun Akhtar Khan said that increasing trade deficit was not an alarm bell for the government since all other indicators were showing positive trend to take exports to new heights in coming years. He said that trade deficit soared during 2003-04, but was never out of control. Import of raw material and capital goods were two major reasons of widening trade gap, but being engine of economic growth, import of these items were not a cause of worry for the government.
The minister expressed satisfaction that Pakistan's exports were increasing continuously since 2000-01, and the same trend will continue in the future. He said that Islamabad was pursuing the policy of signing Free Trade Agreements (FTA) and Preferential Trade Agreements (PTA) with its important trade partners to secure an important position in the global markets. He counted Sri Lanka, Bangladesh, USA, Iran, Turkey and several other countries with whom Pakistan either have signed or will likely to sign FTA or PTA in near future.
The big increase in the import of machinery and equipment, especially in the textile sector, and of some agricultural inputs like insecticides and plastic material demonstrates that the needs of the economy in these areas have been growing. Textile sector has been preparing to meet the impending challenge of international competition, as quota system will be abolished by the end of the current calendar year. Petroleum group is the biggest item on the import list. The other major items of import are palm oil, road motor vehicles, iron and steel and medicinal products. On the export side, textile sector has once again led they way. Engineering goods also did well. According to Federal Bureau of Statistics the export of rice went up by 13 percent fetching $ 627.214 million during the outgoing financial year. Rice has been one of the main export earners but its full export potential has not been realized. Rice export should be provided with necessary inputs and incentives while the quality should be regularly monitored. The potential to promote non-traditional items also needs to be fully exploited.
Now that the import demand is being determined by the output of various sectors of the economy, the acceleration of exports through the diversification of exportable goods and export market lies within the domain of the official policy and the efforts of the exporters themselves. Most of the goods are exported to seven or eight big destinations. This needs expansion. Among the exportable items, textile products account for 65 percent of total exports. The share of semi-manufactures and manufactured goods is gradually going up which is a healthy trend. Though meeting the trade gap would not be problem, the need to accelerate exports to a point where they are able to finance most of the import bill have assumed greater urgency. Pakistan's objective of attaining zero trade deficits out to be vigorously pursued.