TRADE DEFICIT LIKELY TO SURPASS THE TARGET

DECLINING COTTON PRICES AND RISING OIL IMPORT BILL ARE THE MAJOR CAUSES.

SHABBIR H. KAZMI
(feedback@pgeconomist.com)
June 13 - 19, 20
11

According to the data released by Federal Bureau Statistics (FBS) Pakistan's trade deficit widened to US$1.98 billion in May from $1.62 billion a year earlier. The trade deficit was $870 million in April. Exports increased to $2.30 billion in May, from $1.73 billion and imports grew to $4.28 billion from $3.36 billion in May last year. The country's trade deficit for the first 11 months of the ongoing fiscal year came to $14.10 billion, as compared to $13.97 billion deficit during the same period last year.

This certainly does not paint a satisfactory picture because exports are likely to remain under pressure due to declining price of cotton and worsening energy crisis in the country during June 2011. The country is not likely to achieve the export target and trade deficit is expected to exceed the target. Imports are likely to be more than expected due to higher oil import bill.

TEXTILE EXPORTS

Despite challenges of energy shortage, the textile exports surged by more than 30 per cent during the first nine months of the current fiscal year as against the same period of last year. Textile exports during July March were recorded at $9.880 billion as against the exports of $7.575 billion during last year. All the textile groups witnessed increase in exports except tents, canvas and tarpaulin, exports of which fell during the period under review. The groups that contributed in enhancing over all textile exports included raw cotton, cotton yarn and cotton cloth. Export of raw cotton were recorded at $236.167 million against the exports of $192.931 million, export of cotton yarn stood at $1.509 billion against exports of $1.100 billion and export of cotton cloth was recorded at $1.709 billion against the exports of $1.329 billion. Knitwear exports were recorded at $1.726 billion this year against the exports of $1.3 billion last year while the exports of bed-wear increased from $1.273 billion last year to $ 1.556 billion this year and exports of towels rose from $495.048 million to $580.448 million. Exports of readymade garments stood at $1.276 billion against the exports of $926.815 million, showing an increase of 38 per cent.

DECLINING COTTON PRICES

Hike in global cotton prices proved good for Pakistan but a decline of over 30 per cent in prices will not bode well for the country. Not only that export proceeds will decline but the country may be forced to import cotton to keep its spinning units working. Contrary to the advice of the experts, policy planners chose not to contain export of raw cotton, yarn and un-processed cloth. This led to import of nearly one million cotton bales. The demand would have been higher had the spinning units operating at full capacity. Electricity and gas load shedding has kept capacity utilization of spinning units low, which didn't create supply short fall. However, to achieve export target of next year specific measures have to be taken to boost export of textiles and clothing and all other exports.

BUMPER SUGARCANE CROP

The 2010-11 sugar production was slightly more than the domestic consumption, which has saved the country from import of the commodity, especially to keep its price stable. Since the government has not allowed export of sugar, end of the year stock may be reasonably higher. A little focus on 2011-12 sugarcane crop and commencement of sugarcane crushing season in late November and permission to import raw sugar for the mills can once again include Pakistan's name in the list of sugar exporting countries. Initially, it was feared that some of the sugarcane growers may switchover to cotton cultivation but fall in its global price is likely to contain massive transition. If the country achieves and other bumper sugarcane crop it can save the country from importing the commodity. It is therefore, suggested that the government should allow export of sugar on the condition that if production exceeds 3.5 million tons. This is an achievable target and import of raw sugar can help in brining down average cost of production. The added advantage will be higher production of molasses, which can be used for the production of E-10 to contain oil import bill.

FERTILIZER PRODUCTION

Pakistan has achieved capacity to produce exportable surplus of urea. However, curtailing gas supply of fertilizer plants and diverting it to power plants is proving real punitive. Not only the plants can't be run at optimum capacity utilization, resulting in higher cost of production, but country is also forced to import the commodity. The government has lately decided to import half a million tons urea which will erode country's foreign exchange by US$2 billion. Ironically, the policy planners fail to understand the point that power plants can be run on furnace oil but curtailment of gas results in production loss as well as increase in average cost of production. They also declined the offer of fertilizer industry to pay the cost differential of furnace oil import bill if the government agrees to supply the full allocated quantity of gas.

One could be almost certain that if extensive load shedding of electricity and gas continues, achieving next year's export target will be almost impossible. At times one is forced to arrive at the conclusion that some groups having vested interest are adamant at destroying the local manufacturing infrastructure. The two most glaring example are sugar and fertilizer industry. Making these two industries can help overcome much malice.