Islamabad: Pakistan’s reliance on external borrowings is expected to grow further, as exports continued to disappoint in November, while pace of contraction in imports slowed down, resulting in a trade deficit of about $10 billion during the first five months of the ongoing fiscal year.
The absence of an enabling domestic business environment coupled with falling commodity prices meant exports fell to $8.54 billion in July-November, $1.4 billion or 13.8% less than the comparative period of the previous fiscal year, reported the Pakistan Bureau of Statistics on Thursday.
Improving exports appears to be on the bottom of the government’s priority list. Authorities are yet to approve a new trade policy after the previous one lapsed in June this year. It has also been levying indirect taxes to meet revenue shortfalls, further increasing the cost of doing business.
Meanwhile, imports also contracted in July-November, but the pace was less than the one reported during the previous four months. Imports contracted 9%, dropping to $18.5 billion in July-November, $1.8 billion less than the import bill in the comparative period of the previous fiscal year.
Resultantly, trade deficit in the first five months of the current fiscal year stood at $9.94 billion. The amount is 4.5% or $466 million less than the comparative period, reported the PBS.
Importance of increasing exports
State Bank of Pakistan Governor Ashraf Mahmood Wathra underscored the importance of exports in building foreign currency reserves. “Our long-term solutions lie in increasing exports and increasing foreign direct investment,” Wathra said last week. “Without these two strong inflows, it is very difficult to keep the economy on track.”
The Planning Commission has also recently raised its voice over the issue that may have negatively impacted exports. “Exports have plunged due to energy crisis, overvalued rupee, burdensome taxation and regulatory duties, liquidity crunch due to pending tax refunds and declining private sector credit,” noted Dr Nadeem Javaid, the country’s chief economist.
Declining international commodity price was another factor for the plunge, he added.
“An overvalued currency is playing a role in keeping exports at lower end.”
He said the rupee has depreciated about 7% and there is possibility that the rupee-dollar parity will further correct to show its real value, which will boost exports.
His projections showed that inflation unadjusted Nominal Effective Exchange Rate (NEER) should be further devalued, saying the gap between inflation-adjusted exchange rate and NEER was growing.
However, constant growth in remittances was compensating some of the losses in exports, helping to keep the current account deficit within manageable limits.
Annual performance
On an annualised basis, the trade deficit widened to $2.3 billion in November, which was $615 million or 37.5% higher than the one posted in November last year, according to the PBS. The trade deficit widened due to 15.1% reduction in exports and 8.9% growth in imports.
On annualised basis, the exports stood at $1.7 billion, $296 less than the receipts in comparative period. The imports last month stood at $3.9 billion, which were $319 million up.
On a monthly basis, the trade deficit in November over October also marginally widened on back of contraction in both exports and imports.
