RISING IMPORTS & FALLING EXPORTS

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

May 21 - 27, 20
12

After achieving the exports target worth $25 billion in the last fiscal year 2010-11, Pakistan set the $40 billion export target for the current fiscal year 2011-12, which seems to have been missed. What is more alarming is the double-digit growth in the country's imports and slowdown in exports. The country's imports stood at $37.042 billion against the exports of $19.393 billion during the first 10 months of the current fiscal year, according to the Pakistan Bureau of Statistics (PBS). The imports were $32.263 billion and the exports were $20.092 billion in the corresponding period last year.

The country's trade deficit has widened by 45.01 per cent during the first 10 months of the current fiscal year over the same period of last year with total trade deficit going up from $12.171 billion last year to $17.649 billion this year.

The country surpassed its trade deficit target of $14.5 billion set for the entire fiscal year ending June 30, in just eight months (July to February) raising concerns about the country's deteriorating external account, which could lead to drawdown of foreign currency reserves.

The trade data indicate that the government could miss its earning target from exports set at $25.8 billion for the current fiscal year. Other targets including 13 percent growth in imports and three percent increase in exports over the last year are also likely to be missed.

The country's overall exports may enter a negative growth in the months ahead, which could cause balance of payment problem for the country if no remedial measures are taken by the government. The country has to pay a total of $1.3 billion to the IMF in the current fiscal year. With foreign inflows have almost dried up, the repayment of IMF loan may further drain the country's foreign exchange reserves, which are currently at around $16 billion, compared to a record $18.31 billion in July last year.

The rising import bill is attributed to the rising petroleum prices in the international market as well as growing need for import of other commodities such as fertilizer and food items. The analysts fear that rising import bill may have serious repercussions on external account, foreign exchange, and exchange rate.

The ballooning import bill is likely to weaken the country's balance of payment position, while high fuel and other commodity prices could fuel the already high inflation in the country.

The country's exports decreased 5.29 per cent to $2.240 billion in April from $2.365 billion over the same month of last fiscal year. The imports however witnessed an increase of 15.71 per cent to $3.757 billion in April compared with $3.247 billion in same month last year. The trade deficit during April was recorded at 1.40 per cent over March with total deficit at $1.517 billion from $1.496 billion.

The ever-increasing cost of manufacturing is slowly forcing Pakistan's fiber optic industry out of the export market rendering it uncompetitive. The country is losing optic fiber cable combined market of Middles East and Saudi Arabia to India and China, which are providing optic fiber at much lower rates than that of Pakistan. The cost of manufacturing in Pakistan is around 20 per cent higher as compared to India and China, which are meeting 50 per cent of total requirement of Middle East market.

The long-running energy crisis has actually taken a heavy toll on the country's textile exports. The gas is being supplied to the industry only two days in a week, while electricity tariffs have been enhanced manifold but still there is no respite from power outage.

Local textile makers are concerned that suspension of gas supply and power outages would bring the textile industry to a grinding halt adversely hitting the textile exports. They warn that energy deficient industry would only add to closures and subsequent unemployment pushing more people below the poverty line.

The government's failure to implement textile policy (2009-14) is also a factor causing a huge loss of nearly $5 billion to textile exports. The policy was a reflection of the government's commitment to boosting textile exports to $25 billion in five years. The incentives announced in the policy still await implementation. The incentives included regular supply of gas and power to the textile industry, the textile investment support fund, drawback of local taxes, refund of past research and development (R&D) claims, mark-up rates, and magnetisation of Purified Terephthalic Acid.

The country witnessed a considerable increase in exports during fiscal 2010-11 despite chronic energy shortages, high production costs and worst law and order situation. The increase in exports was attributed to the hike in prices of commodities, especially of cotton based textile group products in the international market.

The country's import bill for oil and eatables ballooned by 23.61 per cent in 2010-11 over the previous year. The import of petroleum products reached $7.274 billion in fiscal 2010-11, surged by 6.09 per cent from $6.856 billion previously.

The country witnessed decline in exports in traditional items including cotton and textiles, which account for over half of the country's exports. The chronic energy shortages in the country have adversely affected the textile industry exports, which declined by 9.40 per cent at $9.019 billion in the first nine months of current fiscal year compared to exports of $9.955 billion in the corresponding period last year.

Textile industry, which accounts for 38 percent of workers in the manufacturing sector, has a potential to invest $1 billion per annum. Critics say the government needs to formulate a comprehensive policy to salvage the textile industry because exporters and manufacturers are really disappointed with the way the government has handled the industry. In view of the comparatively 35 per cent cheaper electricity and 30 per cent higher profit margins in Bangladesh, many industrialists have already moved their factories to Bangladesh.