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Trade deficit in July shrinks to 16.15pc month-on-month as imports drop

By Our Correspondent
August 14, 2018

KARACHI: Pakistan’s trade balance recorded a deficit of 16.15 percent to $3.192 billion month-on-month in the new financial year starting July, though import showed a sign of depression due largely to volatility in rupee value in recent months, government data showed Monday.

The deficit was still smaller than the $3.807 billion deficit recorded in June 2018, as exports fell 12.77 percent to $1.646 billion, while imports declined 15.03 percent to $4.838 billion.

During the period dollar appreciated 4.75 percent against the rupee. Exports on year-on-year for July 2018 increased 1.17 percent and imports for the same period registered a 0.6 percent rise.

Analysts said since July 2017 dollar has appreciated 18.70 percent against the rupee; a “competitive advantage that has yet to pay off”. Brokerage Taurus Securities Ltd said exports for the outgoing month were not too encouraging, but the data for imports showed that rupee depreciation might have started to take its effect.

“This lag was expected as the brunt of the devaluation took place in the latter half of 4QFY18, with July 2018 alone accounting for 30 percent of the total devaluation,” the brokerage said in a research note. “Export and import contracts will take a few months to internalise and reflect the new competitiveness of the rupee.”

It said imported goods were no longer as cheap as they were a few months back - which might have discouraged imports of unnecessary items. “Moreover, recent imposition of regulatory duties and slowdown in infrastructure projects would have also had its toll on imports,” it added.

Last fiscal year, the country’s trade deficit widened 15.9 percent to $37.7 billion. Exports increased 13.7 percent to $23.2 billion in the July-June period of 2017/18, while annual imports soared 15.1 percent to $60.9 billion.

Analyst said exports were showing recovery on financial incentives announced by the last government of Pakistan Muslim League-Nawaz to arrest an unabated decline in outbound cargos. Imports are expected to cool down in the coming months as Chinese-backed

infrastructure projects are reaching an advance stage.

Analyst Saad Hashmey at Topline Securities said the country’s trade balance remained flat over last year with exports and imports showing little or no change. However on monthly basis, the trade balance declined.

“The decline in imports is a much needed respite given burgeoning external account deficit, and shows that recent measures by the government to curtail imports may finally be showing some results,” Hashmey said.

Analysts said risks of higher oil prices could undercut the government efforts to bring down trade deficit to sustainable levels and could also stoke high inflation in the struggling economy.

Oil tops the country’s import bill, and the government has reportedly secured a three-year $4.5-billion oil financing facility from the Islamic Development Bank (IDB) to keep trade balance at a manageable level.

Higher trade deficit put immense pressure on the country’s external account and the current account deficit widened to $18 billion or 5.7 percent of gross domestic product during the last fiscal year.

Analysts said the deficit has reached an unsustainable level, especially when the economy was burning around $1.5 billion a month, and foreign exchange reserves fell to cover less than two months of imports.

The central bank’s reserves stood at $10.4 billion as of August 3. The deteriorating external current account pushed the local currency lower by a cumulative 20 percent since December last year.

The central bank data showed that the country paid $4.11 billion in debt repayments during the last fiscal year as compared to $4.374 billion a year ago. The bank said a notable portion of this higher current account deficit was financed by using the country’s own resources in the absence of matching financial flows. “The near-term management of the country’s external accounts is of critical importance,” it said in a recent report. IMF projected that Pakistan’s external debt and liabilities could peak to $144 billion in the next five years from $93 billion in fiscal 2018.