ALARMING TRADE DEFICIT
SHAMIM AHMED RIZVI
July 28 - Aug 03, 2008
As was feared by economist and analysts Pakistan's trade deficit for the financial year 2007-08 has swelled to an all time high point of $20.74 billion which is almost 53 percent higher than the comparable figure for 2006-07 and almost 100 percent more than the estimates in the budget for the outgoing financial year.
It is despite the fact that optimists in the government economic team were predicting for the last couple of months that deficit would diminish with the weakening of rupee instead the trade gap created increased pressures for the rupee to drop further. This has confronted the government with a dilemma of balancing its financial accounts. The rising trade imbalance, depreciating Pakistani rupee and record high inflation are the three big monsters that have badly confused the government economic policy makers.
According the data released by the Federal Bureau of Statistics last Wednesday the country imported goods worth $ 39.968 billion against $ 19.922 billion exports during 2007-08. The deficit is $ 7.182 billion more as compared with the last year. Economists say this habit of running trade deficit throughout the year could be disastrous for the economy and the government has to evolve a strategy to mend its fence. Further analysis of the data shows an increase of 5.51 percent in exports in June over last month that have increased to $ 2.053 billion in June from $ $1.946 billion in May. The trade deficit was recorded $ 1.97 billion in June with $ 4.052 billion imports against $ 2.053 billion exports for the month. Monthly comparison of trade data showed that there was about 57.42 percent increase in trade deficit in June 2008 over the same month last year. The deficit was increased from $ 1.252 billion in June 2007 to $ 1.971 billion in June 2008.
There was a huge increase in import bill because of high prices of oil and food import bill. The imports were as high as $ 39.968 billion at end of the year with over 30 percent increase from last year. The total imports in last year were $ 30.539.billion which have been increased to $ 39.968 billion, about $ 9.429 billion up over last year. The growing trade deficit, experts says would not have only put pressure on foreign exchange reserves but would amassed more inflation because the country imports a number of food items to meet its domestic needs. Many fear that Pakistan was becoming increasingly an imports dependant country with the growing list even of food items, despite being an agricultural country.
For decades Pakistan's balance of trade remained negative, but it was not as high as now. In 1996-97, with PPP in power, the trade deficit touched $3.2 billion, today it is staggering $20.75 billion. The trade deficit started surging during the last 3/4 years. Instead of taking effective remedial measures our economic managers took refuge behind false perceptions that this was mainly because of machinery and industrial plants related imports, which would in the long run help boost production and thereby exports. However, there are no indications to prove this theory and instead the date for the last year shows that machinery and plant imports declined to a great extent. The import bill soared because of mounting oil prices in the international market and import of food and consumer items. While the Government can do little about oil prices, which are beyond its control, it can definitely take steps to increase local production of food items in an agricultural country and discourage imports of unnecessary items. It is ironical that our markets are flooded with all sorts of foreign goods and world's latest models cars and luxury vehicles are seen on the roads of a poor country. It is our good luck that Saudi Arabia is once again coming to our help by acceding to our request for supplying oil on deferred payment worth about six billion dollars, which would be a big relief to the hard-pressed country. We are thankful to the Kingdom for this benevolent gesture. However, this is not a permanent solution to the problem and the policy-makers should devise ways and means to boost industrial and agricultural production as well as exports to overcome the problem.
If we don't wake up even now and come out with prompt drastic measure to meet the daunting challenges on the economic front, as a time will shortly come when exports and reserves will no longer sufficient to cover our import bill. This, in turn, will lead to, an even faster erosion of the rupee than has been evident to-date and send a signal to the market that Pakistan is not a good place to invest. Capital flight would further exacerbate the situation and Pakistan would find itself in a position where donor support would be contingent on extremely harsh conditions that are unlikely to do much good to the already waning public support for the Gilani administration. Critics of the government are pointing out, with a degree of veracity, that 3his unsavory process has already been set in motion and unless harsh measures are undertaken on an emergency basis there is no reversing the economic downswing.
At present the general public appears to be particularly vulnerable to doomsday soothsayers who are focusing on the widening gap between the rich and the middle income earners of this country and between the middle incomes the poor. The lower down on the income scale, one is the more vulnerable the economic conditions prevailing in the country. An action plan is, therefore, critical with clearly and unambiguously stipulated time linked targets that seek to resolve the impasse caused by weak macroeconomic fundamentals.
As a first and short term step, it is vital for the government to slash unnecessary expenditure. Prime Minister Gilani has already announced a 40 percent reduction in his own expenditure; however the President's expenditure has not been slashed. In addition, the frequent parleys overseas between the two main coalition partners, namely, the PPP and the PML (N), are being seen as wasteful expenditure - whether these costs are borne by the government or from the personal dollar accounts of the participants. Use of personal dollar accounts held within the country to meet expenses while parleying would constitute capital flight, however small, while those held outside the country must be brought back to shore up the declining rupee value. Estimates of accounts held by our politicians' abroad range to the tune of billions of dollars and it would be fitting if this money is brought back, for after all if those at the helm of affairs are not going to have confidence in the country then the common man is too not likely to.