TRADE DEFICITS JUMPED TO $12BN IN JULY-FEB 08

SHAMIM A. RIZVI
Islamabad
Mar 24 - 30, 2008

The country' foreign trade deficit during the 8 months of the current financial year (July-Feb 2007-08) jumped to a record high figure of $12.43 billion almost 39.05 percent more than the corresponding period of the last fiscal which stood at $8.94 billion.

Ballooning imports and deflated exports have hit the external sector badly. The way import are rising it is feared that gap between imports and exports may cross 17 billion dollars unprecedented in the economic history of Pakistan and about 80 percent higher than the original estimates.

According to the figures released by the Bureau of Statistics the economy during the first eight months of the current fiscal pulled in imports worth $24.14 billion while its exports stood only at $11.71 billion. During the same period of last fiscal, imports stood at $19.79 billion and exports at $ 10.85 billion. This depicts 21.95 percent growth in imports while only 7.86 percent rise in exports.

More interestingly, during February 2008, exports were up 5.31 percent to $ 1.55 billion while imports rose 3.67 percent to $ 3.66 billion over January 2008. During February 2008, imports were up 42.25 percent and exports 22.25 percent over February 2007.

Each month, the import growth exceeds that of export's steadily widening the trade gap. It is important to note that previously, in its trade policy for 2007-08, the government targeted imports at $29.6 billion and exports at $19 billion with a trade deficit of $ 10.6 billion.

Now, during July-February 2007-08, the country achieved 61.63 percent of exports and 81.55 percent of imports target. The huge import pressure and low export growth indicates that by the end of this fiscal, trade deficit would reach more than $ 16 billion that would further aggravate the current account deficit (CDA) that could affect the country's economic health.

The sharp rise in import, was mainly due to imports of costly crude oil and edible items particularly wheat which witnessed highest ever increase. The import bill of non-essential items like mobile phones, gold and expensive cars also witnessed a substantial increase during the period on the other hand exports remained sluggish with marginal increase over the last year.

Judged from the developments during the current fiscal year so for, there seems to be no doubt that Pakistan is heading fast towards highest-ever trade deficit in its history. The trade gap of over $ 12 billion during the first eight months could easily cross $17 billion during 2007-08 which will be another record over the deficit of $13.5 billion in the preceding year. It may be mentioned that in the trade policy for 2007-08, the government had fixed and ambitious export target of $19.2 billion but had refrained from projecting the level of imports and the overall trade gap during the year. The fact that now our exports cannot even finance 50 percent of the import bill is a matter of great concern.

The trade deficit of this magnitude could have been tolerable if inflows like home remittances, foreign investment and privatization proceeds had been sufficient to narrow the current account gap to sustainable levels, which is not the case as current account deficit is also widening simultaneously. As if to indicate their helplessness, the economic managers of the country some times attribute the widening gap in the external sector to the increase in the international prices of petroleum products, food and edible oils to record levels. However, it needs to be pointed out that it is the importing countries which have to adjust to the evolving situation and achieve a sustainable balance in their current account by reducing the level of imports and / or expanding exports. Of course, it will be painful to adjust to the new reality as it would mean reduced level of domestic consumption, but there is no alternative. Saudi Arabia has granted $ 300 billion for balance of payments support but countries experiencing external sector deficits cannot survive on doles and have to find the resources of their own to finance the import bill. This is a tough task and another challenge for the incoming government. Inaction on this front would be no option as foreign exchange reserves of the country are not adequate to sustain the hemorrhage of deteriorating external sector developments for long.