Trade deficit widens 24.5pc to $17.963 billion in July-Dec

KARACHI: Trade deficit widened 24.5 percent to $17.963 billion in the first half of the current fiscal year of 2017/18 as growth in imports continued to outpace recovery in exports, official data showed on Wednesday.

Trade deficit amounted to $14.428 billion in the July-December period of FY2017, according to the Pakistan Bureau of Statistics (PBS).

Exports increased 11.24 percent year-on-year to $11.007 billion in the first half of the current fiscal year, while imports surged 19.11 percent to $28.970 billion in the July-December period.

In December 2017, exports rose 14.8 percent year-on-year to $1.977 billion, but they marginally increased 0.15 percent month-on-month.

Imports jumped 10.1 percent to $4.910 billion in December as compared to the same month a year earlier and they slightly rose 0.24 percent over the previous month.

Widening trade deficit seems to be a logical outcome of capital-intensive imports to meet the demand for development of infrastructure projects.

But, analysts said exports should further be increased to make up with an outflow of dollars, while imports must be contained.

Mohammad Sohail, chief executive officer at Topline Securities said rupee devaluation and more import duties on non-essential products will contain import growth.

Rupee lost more than five percent of its value in the three consecutive sessions last month. Currently, it traded at 110.54/dollar in the interbank market as compared to a tight range of 104-105/dollar since December 2015.

Analysts said there is need of further depreciation and rupee is still overvalued and they put reasonable dollar-rupee parity at Rs110 to Rs115.

The government also slapped import duties on non-essential products and is expecting to slash import bill by more than two billion dollars.

Government eyes $23 billion in exports revenue in the FY2018, which means the exporters should fetch at least $12 billion in the second half.

Economist Ashfaque Khan said a marginal increase in exports is possible by the fiscal year-end, “but the policymakers should revisit the policies and realise the reasons behind the fall in exports during the past four years.”

“Senseless taxation and limited pass-through of fall in oil prices resulted in decrease in exports,” Khan, who’s served as adviser to finance ministry, added. “At least, Rs300 billion worth of refunds of exporters should immediately be settled to ease their funds paucity.”

The government presented the strategic trade policy framework 2015/18, which envisaged $35 billion in exports. Yet, the current pace of exports made the target highly overambitious.

Sohail said lack of government focus in the last few years to boost exports was a main reason of the trade policy’s failure.

“Besides, refund and electricity issues coupled with overvalued rupee affected exports,” he added. “Moreover, there is no serious plan to diversify into new products.”

Economist Khan said trade policy is a routine exercise of every government and generally unrealistic targets are set in such policies.

“I think we should learn lessons from our regional competitors, including neighbouring India,” he added. “They have passed on the benefits of soft oil to their industries.”