THE TRADE DEFICIT FURTHER WIDENED

A Snapshot

MUNTAZIR HAIDER
Feb 12 - 18, 2007

THE GROWTH TREND

A growth in imports, exceeding that of exports, is witnessed in comparative periods, widening the gap, i.e. increasing the trade deficit. Moving to the current fiscal year trade policy, the government targets the imports at $28 billion, and exports at $18.6 billion, in-turn further widening the imbalance figure to $9.4 billion. It is estimated by the State Bank of Pakistan that the trade deficit would remain in the range of $9 to $10 billion.

TIME-PERIOD

EXPORTS

IMPORTS

IMBALANCE FIGURE

TRADE DEFICIT

Jul-Dec 05

$ 8.047 bn

$ 13.65 bn

$ 5.603 bn

69.62%

Jul-Dec 06

$ 8.436 bn

$ 14.895 bn

$ 6.459 bn

76.57%

Growth

4.8%

9.1%

15.29%

9.98%

(Source: http://www.commerce.gov.pk/Tradestat.php)

CAUSES OF HIGHER IMPORTS

In past couple of years, it has been observed that major rise in imports has been due to increasing prices of oil and the increased import of textile machinery. The two factors still constitute a major chunk of the trade deficit, despite fall in oil prices and decline in machinery imports. It is, therefore, that the State Bank of Pakistan (SBP) foresees no substantial reduction in trade deficit for the current fiscal year. Although the extraordinary import growth in 2005-06 will not be repeated in the current financial year due to the combination of lower oil prices and falling machinery imports, the SBP has indicated that growth on the export front is also forecast to decelerate, which may offset any impact of falling oil prices and declining machinery imports.

TRADE DEFICIT: SBP PERSPECTIVE

In an annual report on Pakistan's economy, SBP has predicted this lower export growth due to the increasing competitive exports market taking toll in terms of lower prices and fall of export volumes of some products. Therefore, there arises a need to provide greater support to exporters. Direct subsidies are costly in the long run; therefore, it would be more desirable to reduce cost of doing business and provide infrastructural improvements.

TRADE DEFICIT: IMF PERSPECTIVE

In a recently published annual report on Pakistan by International Monetary Fund (IMF); the report says that trade deficit of Pakistan has increased manifold, which may jeopardize the macro-economic stability. In comparison with the exports of the country, the unbridled imports swelled so much to put the payments balance at risk.

FIRST HALF FIGURES

The imports of the first half of the fiscal year are $14.89 billion (53.19% of the target), while the export figure is $8.43 billion (45.36% of the target). If the current scenario prevails, the exports target is likely to be missed again this year, while imports target is likely to exceed. In the previous fiscal year, the export target was missed by $531 million from the expected of $17 billion.

FBS PROJECTION

Federal Bureau of Statistics indicates that if exports do not pick up in the second half, the trade deficit might cross $13 billion mark, against the trade policy projection of $9.4 billion.

The Author is an MBA student at IBA Karachi.