Trade deficit narrows 14pc in first 11 months

KARACHI: The newly-elected government seems to have succeeded in addressing the key factor behind widening external account gap during its stint of less than a year as it attained double digits reduction in trade deficit during the first 11 months of the current fiscal year, official data showed on Tuesday.

Nonetheless, stagnant merchandise exports pose a drifting challenge to the government’s reforms agenda to overcome economic imbalances and introduce stability in the economy that has scaled back on growth trajectory. In July-May, trade deficit narrowed 13.6 percent year-on-year to $29.2 billion with merchandise imports on downward trend, but exports remained flat, according to the Pakistan Bureau of Statistics (PBS) data.

Imports amounted to $50.4 billion in the first 11 months, down 8.4 percent over the corresponding period a year earlier.

The government that was elected in the middle of last year confronted to adverse external account deterioration with foreign exchange reserves having dropped to the level insufficient to cover less than three months of exports.

Within a couple of months since taking the office, it came with two supplementary budget imposing punitive regulatory duties on non-essential products to compress imports. It extended its imports-discouraging policies in its first budget for the next fiscal year of 2019/20. Exports, however, remained flat at $21.2 billion in the July-May period compared to $21.3 billion a year earlier.

In May, trade deficit contracted 19.3 percent year-on-year to $2.9 billion with both imports and exports on downward trend. Imports amounted to $5 billion, depicting a decline of 12.8 percent year-on-year. Exports fell 1.7 percent to $2.1 billion in May over the corresponding month a year earlier.

In May, trade deficit, however, widened 10.5 percent from $2.6 billion in April. Imports increased six percent from $4.7 billion, while exports inched up 0.3 percent in May from $2 billion in April.

Exports continued to decline despite strings of rupee devaluation in the past couple of months. The rupee has lost almost one third of its value in the past 12 months.

Exporters, however, disliked withdrawal of zero-rated tax regime in the budget for the next fiscal year that they said would worsen liquidity crunch for the industry, contributing around 70 percent to exports revenue.

Global economic slowdown also took toll on the international trade, causing erosion of export orders and that distanced the possibility of $28 billion exports target set by the Pakistan’s government for the current fiscal year of 2018/19. The government, facing dearth of dollars, finds rescuer in overseas Pakistanis who send money to increase foreign exchange stocks.

Remittances grew 8.45 percent during the July-April period of FY2019 as compared to 5.36 percent last fiscal year and reached to $17.8 billion during the first ten months of the current fiscal year as against $16.4 billion a year earlier.

“Historically remittances have been providing support to sustain current account deficit as a buffer against the trade deficit with average growth rate of 7.7 percent during last five years,” the government said in the economic survey report for FY2019.