SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
Sep 24 - 30, 2007

During the first two months of the current financial year (July August 2007 Pakistan's trade deficit surged to $ 2.359 billion showing an increase of 10.12 increased over $ 2.14 billion during the corresponding period last year.

The exports posed an increase of 4.3 percent to $2.963 billion during July-August 2007-08 against $ 2.84 billion of last year. Imports in these two months increased by 6.81 percent to $ 5.322 billion compared to $ 4.983 billion of last fiscal year, according to figures released by the Federal Bureau of Statistics (FBS). The trade deficit in August increased by 16.70 percent and reached $ 1.270 billion from $ 1.088 billion of July. The exports decreased bgy 0.6 percent to $ 1.477 billion in August from $ 1.477 billion of July. Imports during august were recorded at $ 2.747 billion compared to $ 2.574 billion of July.

The financial year 2006-07 closed with a highest ever trade deficit of about $ 13.4 billion Addressing a press conference on the issue of souring imbalance in country's external trade in Islamabad, the Federal Minister for Commerce Humayun Aktar blamed Government policies for dwindling exports and surging imports. The Minister picked up courage to admit that the government was focusing on high growth, more revenue generation, reducing debt to GDP ratio and not on increasing exports or reducing the trade deficit. Falling exports and staggering trade deficit has reached an alarming levels.

Independent economists as well as the International agencies have been drawing the attention of the economic managers of the country for the past many months towards the rapidly rising trade gap. Showing its concern the World Bank cautioned Pakistan in March last that if soaring trade deficit was not capped, it may hurt country's economic growth.

The Ministry of Commerce, in an analytical study presented to Prime Minister Shaukat Aziz a few month back, catalogued major factors that have contributed to a sharp downslide in Pakistan's export performance. The two primary causes listed in the ministry's report which have eroded competitiveness, include poor product quality and low value addition. Use of relatively old machinery, and inadequate electricity supply given to some of the sector too have proved hampered production, requiring a high maintenance cost, which in turn has eroded product competitiveness. Low return on capital, low productivity of labour and increased wastage of inputs are the other factors that have made Pakistani products more expensive than those from some of the neighbouring countries, says a report based on MoC's study. It says that Pakistani entrepreneurs tend to invest in non-productive, speculative and non-industrial sectors such as real estate and stock market, which yield quicker and better returns as compared to industrial and productive sectors.

This tendency has in fact already prompted the Planning Commission to recommend to the government to discourage investment in non-productive and speculative activities through imposition of capital gains tax on real estate and stock market transactions. Lack of adequate investment in R&D, export houses, shortage of capacity to meet bulk orders and the levy of high protective tariffs with pronounced anti export bias, have all discouraged investment in export oriented industry. UN competitiveness in terms of adherence to contracted quality and general failure to stick to delivery schedules are the other manor reasons that have dented the country's export sector.

The Ministry recommended many remedial measure to enhance exports to control the ever sin trade imbalance which was posing a serious threat to the economy. It seems that nothing concrete has been in this regard as the situation has further worsened since then.

As the current trends indicate, it seems difficult for the country's economic managers to post a balance of payment surplus (BOP) this fiscal year without additional foreign borrowings. In the last fiscal year, the country recorded a BoP surplus of $ 3.5 billion but its stock of foreign debt and liabilities rose by $ 3 billion to $ 40 billion.

In July-August FY 08, exports grew 4.3 percent to $ 2.96 billion but imports shot up to $ 5.32 billion, up by 6.8 percent. AS a result, trade deficit increased by 10 percent to $ 2.36 billion. The government maintains that the export target of $ 19.2 billion set for this fiscal year (2007-08) against imports estimated at $ 32 billion and trade deficit of $ 12.8 billion would be met.

"But in view of growing political uncertainty and a near collapse of the law and order, it would be too difficult to meet the target", says Mr. Tanvir Sheikh, President of the Federation of Pakistan Chambers of Commerce & Industry. "Foreign buyers were already shy of visiting Pakistan. The recent killings and suicide bombings have totally scared them away". Businessmen say most of their foreign trade partners now don't want to come to Pakistan and finalise trade deals in Dubai, Hong Kong or Singapore.

"Besides the textile sector which accounts for two third of our exports, is still crying for the government support and incentives but to no avail. How can we meet the export target? Businessmen also say that political power tussle being staged under the spotlight of international media may take its toll on inflows of foreign exchange. And the most effect are may be portfolio investment.

The American Business Council of Pakistan has said that 76 percent of its members considered the law and order situation poor and 72 percent believed that internal political situation was not happy. "Things are apparently not good enough right now".