Shrinking trade deficit

The one policy area in which the PTI government has succeeded remains the country’s trade deficit. The good news is that the trade deficit has continued to fall in the first two months of the current fiscal year. While this does little to reduce the over $20 billion borrowing requirements that the government will need to pursue this year, the shrinking of the trade deficit is good news. The decline itself has come from the shrinking of non-essential luxury imports, which is a positive sign. It is clear that Pakistan cannot continue to import luxury consumer items without redressing its overall balance of trade.

Increasing exports is the crucial second step that the economy will need to take, but this is an area which the government’s ongoing policies has put under further strain. The numbers are important. Pakistan’s trade deficit has shrunk by nearly 38 percent in the first two months of the current fiscal year. Compared to imports of $9.78 billion in the same period last year, the import bill has shrunk to $7.65 billion. Exports, on the other hand, have only marginally improved from $3.41 billion to $3.68 billion. The changes alone have brought the trade deficit down from $6.37 billion over the two months to $3.973 billion.

The numbers from the two months show that the government is set to meet its target of bringing the trade deficit down to $27.46 billion for the current fiscal year. This will go a long way towards stabilizing the economy. The other good news is that the government has managed to do so without imposing duties on raw material and machinery imports. Duty-free imports of machinery and raw materials grew by around 7 percent for the two months, coming in at almost $3 billion. Since these imports are directed towards growth and positive economic activity, this should be considered positive news. Does this mean that the economy is starting to do better? That is not a conclusion that can be made right now. Pakistan remains in the midst of an economic slowdown, which is not purely down to a reduction in luxury consumption. The manufacturing sector has joined the sectors that have been under-performing. While the government’s import reduction policies remain successful, its overall economic performance remains questionable. For now, the government is doing better than last year on curbing the trade deficit, but the need to increase exports is the essential next step. This is what the government now needs to focus on.