The major drop in imports helped to reduce current account deficit significantly in July 2019. The current account deficit was $2.13 billion in July 2018 which reduced to $ 579 million in July 2019. This will help to ease pressure on the foreign reserves. Pakistan imported goods worth of $5.5 billion in July 2018 while it imported $4.1 billion worth of goods in July 2018. So Pakistan imported $ 1.4 billion less worth of goods in July 2019.
There are few factors that played important role in drop of imports. The devaluation of Pakistani currency makes the US dollar expensive. The Pak Rupee lost 32% value against dollar in one year. The rising dollar makes the imports expensive. The increase in the prices of imported products resulted in the fall in demand. The increased import duties and taxes made the imported goods even more expensive. The falling purchasing power as the result of rising inflation and price hike reduce the demand of expensive goods.
The slowdown in the economy and production activity decreased the import of machinery and some raw materials. The imports ballooned in last few years as the CPEC projects increased the import of machinery and other material. Most of these projects have been completed or near completion. The import of power plants and construction machinery and material played important role in the increase of import bill of Pakistan.
Machinery imports dipped 20.55pc to $6bn, from $7.5bn last year with the decline led by shrinking imports power-generating machinery at 50.9pc, textile machinery 11.52pc, construction and mining 22.21pc, electrical 18.06pc and telecom 9.91pc.
Transport group, another major contributor to the trade deficit, also receded during 8MFY19 as it dipped 30.09pc on back of decrease in all sub-categories.
Similarly, food imports — the second-largest component contributing to the total import tally — shrank 8.25pc year-on-year to $3.68bn in 8MF19, from $4.217bn in same period last year. The decrease was driven by an 8.2pc fall in palm oil while other smaller sub-heads declined as well.
The deffered oil import from Saudi Arabia also helped to reduce the import bill in July 2019. Saudi Arabia has extended three years oil import facility on deffered payment to Pakistan to ease its current account deficit. Pakistan has started to get oil under this facility. Pakistan can import oil worth $3 billion for three years under this facility. Pakistan imported oil worth $15 billion in 2019. The import of oil is nearly 30% of total import bill of Pakistan.
This must be a relief for the government which has been struggling to plug the deficit through borrowing from donor agencies, commercial banks and friendly countries. Primary contributor to the noticeable decline was the governmental measures aimed at curbing the imports. But it is temporary relief.
The decrease in imports has been the primary driver of the lower current account deficit but the trade bodies, importers and big traders have criticised measures to cut on imports, which, they say, would impede economic activity and thus hurt exports as well. Export industry also depends on imports for manufacturing its products as they use around 33pc of imported constituents.
The government is trying to reduce the trade gap and current account deficit with restrictions and curbs on imports because the exports are not rising to levels necessary to reduce the trade gap progressively. The problem with this approach is when the economy started to pick up growth again then the imports will start to rise again. The demand of machinery and raw material will increase when economy will grow at the fast pace.
What is needed at the moment is to prepare a short term and long term plan to increase our exports. New markets need to be identified and searched to increase the exports. Pakistan also needs to improve the quality of products to increase the exports. Latest technology and well trained human resource will help to increase the quality and quantity of production. Pakistan needs to increase productive capacity to boost the exports.
Without increasing the exports, the trade gap and current account deficit will come back to haunt our economy. These issues need to be addressed on permanent basis. Pakistan should only import products and goods that are very necessary and essential. Unnecessary imports are hurting the economy and manufacturing. Reduce the imports but at the same time increase the exports.
Decline in import leades to decreased financial activity as well. We would love hear any news regarding increase in exports.
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05 April, 2020