Pakistan’s import bill continues to rise during last financial year 2020-21. The trade deficit has almost touched the levels of financial year 2019. According to the data shared by ministry of Commerce, the annual trade deficit reached $30.796 billion in July-June FY21 from $23.180 billion over the corresponding period of last year.
In rupee terms, the trade deficit was posted at 33.8% on a year-on-year basis. In financial year 2020-21, the country’s trade deficit had narrowed to $23.099bn from $31.820bn in the previous year.
Trade deficit reached an all-time high of $37.7bn in FY2018. However, the government’s measures led to a drop in trade deficit to $31.8bn in FY19 and $23.183bn in FY20. The trend reversed and trade deficit was recorded at $30.796bn in FY21.
Pakistan’s merchandise trade deficit widened by 32.9 %, or $7.616 billion, in the outgoing fiscal year (FY21) from a year ago on the back of lower export proceeds and higher than expected imports.
The monthly deficit reached $3.333bn in June 2021 from $2.120bn a year ago, reflecting an increase of 57.2pc. In rupee terms, the trade deficit was posted at 50.5pc on a year-on-year basis. In FY20, the country’s trade deficit had narrowed to $23.099bn from $31.820bn in the previous year.
The July 2021 data is even more alarming for the government which takes credit for reducing the trade deficit, as it widened 81.4 per cent in the first month of the current fiscal year (FY22), driven largely by almost double increase in imports compared to exports from the country. Merchandise trade deficit reached $3.058 billion in July this year against $1.686bn over the corresponding month last year.
The trade gap expanded due to the increased import of petroleum products, food, machinery, raw materials, chemicals, mobiles, tyres, antibiotics and vaccines. The increase in the prices of commodities in the world market also played its role in the rise of import bill.
The increase in the trade gap was expected as the economy began to recover from the Covid-19 impact and the shortfall in domestic wheat, sugar and cotton production forced the government to import these commodities.
In its last monetary policy statement, the State Bank noted: “As the economy recovers the trade deficit is widening somewhat on the back of imports of capital goods and industrial materials as well as food, together with rising international commodity prices.” In spite of the widening trade deficit, the external sector outlook for the near term remains stable for now as the central bank expects the current account deficit to stay below 1% of the size of the economy owing to “record remittances, relatively subdued domestic demand and a nascent recovery in exports”.
Trade gap has been widening since December 2020, mainly led by exponential growth in imports and comparatively slow growth in exports.
The import bill is also rising mainly due to increased imports of petroleum, soybean, machinery, raw material and chemicals, mobile phones, fertilisers, tyres and antibiotics and vaccines. The growth in remittances at the moment will be sufficient to finance the import bill.
Exports posted a growth year-on-year by 17.3pc to $2.347bn in July 2021 against $2.001bn over the corresponding month last year. On a month-on-month basis, exports of merchandise dipped by 13.64pc. Export proceeds went up 18.2pc to $25.294bn in FY21 from $21.394bn over the last year.
Adviser to the Prime Minister on Commerce Razak Dawood has said the government sets an export target of $38.7bn for the current fiscal year.
Mr Dawood said the export target of commodities for FY21 was $25.3bn and that of services was $6bn. He said the highest-ever export of IT services was recorded in the outgoing fiscal year, which grew by 47pc to $2bn.
For the current fiscal year, he said the commerce ministry projected $31.2bn worth of goods and $7.5bn of services exports.
Mr Dawood said the government was focusing on the export-oriented policy, besides pursuing a policy of “Make in Pakistan” to encourage the local industry and make locally produced goods internationally compatible for exports.
Trade gap has been widening since December 2020, mainly led by exponential growth in imports and comparatively slow growth in exports. The annual import bill went up by 25.8pc, or $11.517bn, to $56.091bn in FY21 from $44.574bn over the corresponding months of last year. In June 2021, the import bill reached an all-time high of $6.052bn against $3.719bn over the last year month, indicating growth of 62.7pc. On a month-on-month basis, the import bill increased by 14pc.
The combined import value for cotton, sugar and wheat stood at $2.4 billion due to shortage in domestic production while machinery imports stood at over $8 billion — an indication of expansion in industrial base.
Exports posted a growth year-on-year 18.2pc or $3.9bn to $25.294bn in FY21 from $21.394bn over the last year. In June, export proceeds reached $2.718bn from $1.599bn over the corresponding month of last year, indicating a growth of 70pc
The commerce adviser said the value of annul export proceeds is the highest-ever in the history of Pakistan. The exports in June 2021 were also the highest for any month, he further claimed.
The textile exports increased 18.85%, pharmaceutical 27% and copper and copper derivatives 44%, respectively. Meanwhile, he said, rice exports declined 8%, cotton yarn 2%, raw leather 16% and plastic 6%, respectively.
Pakistani exports are stagnated around $25 billion mark. It ranges between $20 billion to $25 billion in the last decade.
In the machinery group, the total import bill reached $10.144 billion in FY 21 as against $8.787 billion over the corresponding months of previous year, a growth of 15.45%. Import of power generating machinery was up by 39.38% to $1.913 billion in the outgoing fiscal year from $1.372 billion over the same period last year.
The second biggest contributor to the group is the mobile phones import that increased by 50.75% to $2.065 billion during FY 21 as against $1.369 billion over the previous year.
However, the import of construction and electrical machinery dipped by 26.52% and 25.37%, respectively. The import of agriculture machinery posted a paltry growth of 0.83%.
The PBS showed the oil import bill rose to $11.35 billion in the FY 21, indicating an increase of 9.09% from $10.411 billion over the previous year.
The petroleum product imports were up by 9.03% in value in the FY 21 and increased by 28.73% in quantity. Crude oil import rose by 14.15% in value and 32.02% in quantity during the period under review while those of liquefied natural gas fell by 1.69% in value. However, liquefied petroleum gas (LPG) imports jumped 60.70% in value in FY 21 largely to plug a shortfall in local production.
This 54% rise in spending on food imports could have been contained to some extent, had the government aptly handled the wheat and sugar shortages – and had some important substitution policies been in place.
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