Pakistan’s BOP position to improve on back of low trade deficit, remittances; Study

Pakistan’s Balance of Payment position is set to improve, on the back of reduction in the trade deficit and remittance inflows, said BCA Research in its latest research.

The Canadian research firm BCA Research in its study titled ‘BCA Overweight View in Pakistan Equities,’ said that the country’s trade deficit will shrink further, as Pakistan’s export will likely improve more than its imports.

Pakistan’s total exports declined 6.8 percent year-on-year in June, which is a considerable improvement as compared to the massive 54pc and 33pc contractions that occurred in April and May, respectively.

The report was of the view that as the number of daily new cases and deaths are falling, the country is likely to remain open, lowering the odds of a domestic supply disruption. In addition, as DM growth recovers, the demand for Pakistani products will improve as well. Europe and the US together account for about 54pc of Pakistan’s exports.

BCA expects that the government will likely approve the textile industry’s request for supportive measures, including access to competitively priced energy, a lower sales tax rate, quick refunds, and a reduction of the turnover tax rate to boost the performance of the domestic textile sector.

Furthermore, the government has prepared an incentive package for the global promotion of the country’s information technology (IT) sector, aiming to increase IT service exports from the current level of US$1 billion to US$10 billion by 2023.

Regarding Pakistan’s imports, low oil prices will help reduce the country’s import bill year-on-year over the next six months, opined the report.

Talking about Pakistan’s remittance inflows, the report said that even though about half of the remittances sent to Pakistan are from oil-producing regions like Saudi Arabia, UAE, Oman, and Qatar, low oil prices may only have a limited impact on Pakistan’s remittance inflows.

At the same time, the government has planned various measures to boost remittances. For example, a “national remittance loyalty program” will be launched on September 1, 2020, in which various incentives would be given to remitters.