Trade deficit

EDITORIAL: Pakistan Bureau of Statistics (PBS) trade data for July-October 2023 notes an improvement in the balance of trade compared to the same period of 2022 – from negative 11,355 million dollars to negative 7,416 million dollars in 2023.

This no doubt reduces the need for borrowing from abroad and therefore must be appreciated. However, comparing the October 2023 trade imbalance with September 2023 indicates a rise in the trade deficit by 581 million dollars – from negative 1,518 million dollars to negative 2009 million dollars.

And a comparison of the October 2023 data with October 2022 also does not provide a comfort level as the balance declined only by 98 million dollars - from negative 2197 million dollars in 2022 to negative 2099 million dollars in 2023.

The October 2023 data shows a 13.55 percent rise in exports and a 4.91 percent rise in imports (in dollar terms) over October 2022, though the July-October 2023 statistics against the comparable period of 2022, indicative of a trend, continue to pose serious concerns with exports rising by a mere 0.66 percent and imports declining by 18.7 percent in dollar terms.

The rise in exports during the first four months of this year has not been in value-added products (textiles, leather manufacturers and carpets) but in food items (rice, fish preparations, tobacco, oil seeds and nut kernels) compared to the year before.

As per data uploaded on the State Bank of Pakistan (SBP) up to September this year textile group accounted for 1,332,807 thousand dollars worth of exports - a decline from the 1,415,128 thousand dollars in August 2023 against a much better performance in September last year at 1,607,184 thousand dollars and 1,708,444 thousand dollars in August 2022.

Food group exports amounted to 491,593 thousand dollars in September 2023, higher than the August figure of 392,078 thousand dollars against 365,688 thousand dollars in September last year and 431,334 thousand dollars in the current year.

Sadly, Pakistan continues to focus on traditional manufacturing rather than develop industries where value-addition is not reliant on farm output as a basic input, an industrial base that accounts for export-led growth in countries like Japan and Germany.

This would require a focus on developing industries with a focus on exports rather than relying solely on exporting surplus to domestic demand.

And equally, if not more disturbingly, even though imports declined during the first four months of the current year against the same period of last fiscal year by 3877 million dollars that accounted for an improvement in the trade imbalance yet this was at the cost of: (i) lower exports of value-added items and their consequent impact on GDP growth as imports provide basic inputs to most of our value-addition industries; and (ii) reflect continuation of import/exchange rate restrictions against the International Monetary Fund (IMF) advice though the government successfully sought an extension to these restrictions, as clarified by Pakistan’s representative at the Fund Board, “both exchange restrictions and Multiple Currency Practices are non-discriminatory and are being maintained for balance of payments reasons, which we intend to remove by the end of the programme” scheduled by 12 of April 2024.

While we do appreciate the reduction in the trade imbalance during the first four months of the current fiscal year yet there is no room for complacency and we continue to hold out hope for some policy changes that would also encourage a non-farm based industrial sector focused on catering for an export market.

Copyright Business Recorder, 2023