RISING TRADE DEFICIT
SHAMIM AHMAD RIZVI
Feb 25 - Mar 02, 2008
Pakistan external trade during the first seven month of the current financial year (July - January 2008) has soared to an alarming gap of $ 10.32 billion with import of $ 20.48 and exports of only $ 10.15 billion. Rising trade deficit is assumed the most worrisome signal of our economy.
The federal Bureau of Statistics (FBS) trade figures revealed that during these seven months, imports were more than double that of exports, which is highly disturbing indication for the economy. In percentage terms, the trade deficit grew by 35.15 per cent during the period under review against the same period of the last fiscal year ($7.64 billion).
During July-January of this fiscal, the country exported goods worth $ 10.15 billion as against $ 9.58 billion of the last fiscal, showing a sluggish growth of 5.59 per cent while, imports grew my 18.9 per cent to 20.48 billion against $ 17.22 billion recorded in the corresponding period of the last fiscal.
In January 2008, trade deficit in absolute terms stood at $ 2.05 billion as Pakistan purchased goods worth $3.25 billion while sold goods of $ 1.47 billion in international market. In January 2007, Pakistan exported goods amounting to $1.17 billion as against the imports of $2.32 billion. Though during the month under review, exports grew by 26.6 per cent, however, imports grew beyond 51 per cent over the same month of the last year. During the January 2008, exports grew by 10.7 per cent to $ 1.47 billion as against $ 1.33 billion recorded in December 2007. On the other hand, imports grew by 50.18 per cent to $ 3.52 billion against $ 2.35 billion imports of December 2007.
It is however, surprising that there is no panic in the corridors of power over this ever-rising trade gap. One is really surprised as to how the economic manager of this country can afford to be so complacent about the worsening trade deficit, which according to independent analysis is posing a serious threat to the economy. If the present trend of our import/export continues the trade deficit during 2007-8 would exceed our total foreign exchange reserves.
Trade deficit during the first half of current fiscal year (July - December) witnessed an increase of 27 percent to reach at $8.238 billion as compared to a deficit of $6.487 billion in the same period of the last fiscal year. According to the official figures, the exports of the country, which are supposed to increase by 10 percent, have witnessed a growth of only 3.67 percent during July ñ December period, total exports stood at $8.715 billion as compared to the exports of $8.407 billion in the same period of last fiscal year. Imports during July-December period of the current fiscal witnessed a double-digit increase and registered a growth of 13.82 percent with total imports jumped to $16.953 billion as against the imports of $14.894 billion in the same period last fiscal year.
Official offer many reasons for the rising trade gap mainly to an unprecedented increase in oil prices in the international market and rising cost of imported food items. Our exports are not picking up despite many incentives offered by the government including subsidized lending to the exporters. In a recent report the State Bank of Pakistan disclosed that despite doling out much higher amount of cheap money under the Export Finance Scheme (EFS), the exporters had been unsuccessful in boosting export earnings since the beginning of the current fiscal year.
As per the latest data the export refinance facilities extended by commercial banks to the exporters at 7.5pc (including those granted by these banks from their own resources) stood at Rs 138.45 billion as against Rs 126.85 billion extended over the corresponding period at 9.15 per cent. The SBP introduced modifications in the export finance scheme which resulted in enhancement; especially exports of value-added textile sector, at 7.5.percent per annum. However, there have been reports of gross misuse of the export finance scheme, which offers money at 7.5 percent as against the prevailing market rate of 12 to 20 percent. This is also important that the bulk of the cheap money is being provided to the textile sector, which has been showing a declining trend in exports since July 2007.
The textile industry, which provides about 60 percent of our export earnings, is in a bad shape. Despite many incentives, instead of picking up, it is declining. Pakistan's textile industry has estimated a shortfall of around one billion dollars in its exports in the current financial year because of three major factors ñ cotton crisis, energy crisis and political chaos in the country. In FY08 the overall textile exports were projected around 11.40 billion dollars as against 10.40 billion dollars in FY07. But severe energy crisis, shortage of cotton, political uncertainty and deteriorating law and order situation have badly undermined the textile sector's capability of increasing exports to over and above the last financial year's benchmark.
Sources in the textile sector say that in 2007-08 the industry even would not be able to reach the level of 10.40 billion dollars exports achieved in FY07. "We are anticipating a shortfall of minimum of one billion dollars in the textile exports target in this financial year because of cotton, energy and political crisis," said Akbar Sheikh, Chairman All Pakistan Textile Mills Association. About 300 textile units have virtually stopped their production because of electricity and gas shortage and their output is set to suffer in 2007-08.
Whatever the reasons of phenomenal growth in trade deficit, the worsening trend during the recent months is alarming. Pakistan had already been facing an increasing trade deficit for the last couple of years owing to lesser export growth and steep increase in imports, but this was manageable due to certain other favorable factors like sharp increase in inflows of home remittances and foreign investment, which kept the current account deficit within reasonable limits. The situation developing this fiscal year is, however, much more disturbing. Exports during 2007-08 were targeted at 19.2 billion dollars by the government and the trade deficit was estimated at around 10.631 billion dollars, but if the present trend continues, the gap in merchandise account could be as high as 17 billions dollars.
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, World Bank cautioned Pakistan in March last that if soaring trade deficit was not capped, it may hurt country's economic growth. The Ministry recommended many remedial measures to enhance exports to control trade imbalance, which is posing a serious threat to the economy. It seems that nothing concrete has been made in this regard as the situation has further worsened.