Pakistan’s trade deficit rapidly deteriorating

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ISLAMABAD: Pakistan’s trade balance is rapidly deteriorating, rising to $5.11 billion in November 2021 from $1.94 billion the previous November. That’s a 163 percent increase.

This is a concerning tendency since it will exacerbate the current account deficit in the months ahead without securing dollar inflows, which will be mostly through debt-creating instruments.

With the IMF’s support, the pressure on the currency rate might worsen in the next weeks and months.

Three unfavourable economic trends were emphasised in the news report, which apparently surprised some federal cabinet officials.

The first development was the rise in the Consumer Price Index (CPI). In background discussions, a federal minister informed the publication that he expected CPI-based inflation to exceed 10% in November 2021, compared to 9.2 percent in October 2021. The federal minister claimed that he advised the governor of the State Bank of Pakistan that the CPI may go above 10%, but that it rose to 11.53 percent in November 2021.

The second development is that, as per a top economic manager, the trade balance is showing a worsening situation in the wake of rising imports but that he had not thought that the import bill would touch the $8 billion mark on a monthly basis in November 2021 against exports of $2.9 billion, so the trade deficit went up by $5.11 billion just in one month.

The overall trade deficit has risen sharply and stood at $20.7 billion in the first five months (July-November) period of the current fiscal year as the exports fetched $12.37 billion, but imports went up to $33.11 billion. The trade deficit stood at $9.54 billion in the same five months of the last fiscal year. The trade deficit in five months of FY2022 went up by 117%.

The trade deficit stood at $3.87 billion in October 2021 as exports stood at $2.7 billion and import $6.33 billion.

This prevailing trend shows that the trade gap is widening on a monthly basis and it now might have rung alarm bells among the dwellers of Q Block (Ministry of Finance).

Rising import bill

Shaukat Tarin, the PM’s adviser on finance, chaired a meeting in the Ministry of Finance to review the increasing import bill and directed the authorities concerned to take steps to curtail the import of luxury items.

Food imports totalled $911 million in November 2021, followed by energy (including POL products and RLNG) at $2.4 billion, raw materials at $2.2 billion, machinery at $1.14 billion, and COVID-19 vaccination at $621 million, according to the Ministry of Finance officials.

Although the government does not have much room to reduce imports, the Ministry of Finance is constantly considering solutions such as banning the import of vehicles and raising the Regulatory Duty (RDs) and Additional Customs Duty on 10 to 12 additional luxury items to reduce the import bill.

The third unfavourable aspect is the stock market’s continued haemorrhaging and depreciating exchange rate as it plummeted.

DailyTimes, 03 Dec, 2021
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