Trade deficit shrinks by 15.25pc in July-May FY24

ISLAMABAD: Pakistan's trade deficit witnessed a 15.25 percent decrease in the July-May period of the current fiscal year, dropping to $21.7 billion compared to $25.6 billion in the same period last fiscal year, according to official data released Monday. This reduction may bolster the country's current account balance and stabilize the rupee.

According to Pakistan Bureau of Statistics (PBS) data, Pakistan's international sales surged by 10.65 percent, reaching $28.1 billion in July-May FY24. In contrast, imports witnessed a 2.37 percent decline to $49.8 billion from $51 billion. However, imports still exceeded exports by over 56 percent.

Analysts attribute the contraction in the trade deficit to reduced prices of crude oil, petroleum products, edible oil, and other commodities in the international market, alongside reasonably good growth in exports during the period. Although imports also decreased, the reduction was not significant enough to further narrow the gap. During July-April 2023-24, the current account deficit stood at $202 million compared to $3.92 billion last year, indicating a decline (improvement) of 94.85 percent.The ballooning trade deficit in recent years has significantly impacted Pakistan's economy, disrupting the current account deficit and increasing dollar outflows, thereby exerting pressure on the rupee. However, with a slight improvement in trade performance, this pressure has moderated.

In May 2024, exports increased by 27 percent to $2.79 billion compared to $2.197 billion in the same month of the previous year, marking the ninth consecutive monthly rise in exports. Exports also saw an 18.76 percent increase over April 2024, which recorded exports of $2.35 billion.

Imports in May 2024 amounted to $4.9 billion, up 13.9 percent from $4.3 billion in May 2023, and 1.16 percent higher than April 2024's imports of $4.846 billion.

During May 2024, the trade deficit remained almost the same at $2.1 billion year-on-year (YoY), compared to $2.495 billion recorded in April 2024. By the end of this fiscal year in June, total exports could surpass the $30 billion mark.

Independent economists emphasize the significant role of high-interest rates in the sluggish performance of Pakistani exports. They argue that these rates have hindered companies' access to bank loans, as banks prioritize investing in government papers (PIBs) over extending credit to businesses. Commercial banks have increasingly directed investments towards PIBs in recent years, leading to a decline in credit to the private sector over the past ten months.