Trade deficit has worsened in September both on monthly (40%) and yearly basis (22%). The reason is not merely that better economic growth is driving imports; numbers say that agriculture is the weakest link in the chain. It's primarily wheat and raw cotton imports that are eating out the benefits of a) uptick in textile exports and b) savings in petroleum imports due to favorable prices. Growth in machinery imports (21% yoy) is encouraging as this will help in increasing domestic production capacity.
Agriculture supply chain disruption is visible from untimely increase in prices of non-perishable items. Wheat is having its mark on inflation and imports. In Jul-Sep FY21, the food imports are up by 56 percent to $1.7 billion. Over $100 million worth of wheat is imported.
Palm oil import (Jul-Sep) is surprisingly up by 60 percent – 39 percent more palm oil in tonnage came into the country. That seems counterintuitive. The demand probably is less as wedding and large events are not happening. One reason could be the ending of informal channels of payment. Perhaps reporting of data is more accurate now.
That lowering of under-invoicing is also visible from 45 percent increase in other food items to $588 million - a round to super market tells that imported cheese and stuff are fast replacing with domestic brands. This possible reduction of under invoicing (across the board) is validated by unexplained rise in remittances.
Machinery imports in Jul-Sep are up by 4 percent. The numbers in September are encouraging. With a feel good factor in July, people took the decision to import by then and now machinery is starting to land. The demand of SBP long term concessional loans – TERF and LTFF (for exports only) is picking. Textile machinery imports in Sep is up by 72 percent to $44 million. Construction and mining is small but size is doubled in Sep – one can connect this to a pick up in construction activities. On quarterly basis, mobile phone import growth is on the top at 83 percent.
One may expect that falling interest rates and new options would create a fresh wave of demand in automobile. Yes, that is true, but real excitement is not visible in passenger cars. The reason for 43 percent growth in transport imports is $94 million worth of aircrafts, ships and boats imports. The growth in busses, trucks and other heavy vehicles is encouragingly high.
In imports, the major savings are coming from oil. That is giving room for other industries to grow. Both petroleum productions (65%) and crude (30%) are showing exceptional volumetric growths, in value they both declined by 15 and 16 percent in Jul-Sep. One reason for high volumetric growth of petroleum is less imports of RLNG – not a good idea to import FO as a replacement of RLNG to generate power.
There is not much change in exports. Proceeds are down by 1 percent in the quarter. There is a pick up of textile exports in September by 11 percent yoy. The increment is higher in value added exports while yarn and cotton cloth exports are on decline. Now these are processed more at home. The demand is high and textile player are in expansion phase –visible from pick up in textile machinery imports. But the capacity growth would be 15-20 percent – players are saying that demand from customers is higher; but energy pricing issues are of concern. The other problem is falling cotton crop every year. With more demand of textile imports, cotton will be imported. As long as cotton is replaced by a better suited and yielding crop, its fine in the bigger schemes of things.
Agriculture exports in Jul-Sep are down by 18 percent. Last year there was sugar and wheat exports. Now these commodities are being imported. Rice exports are down by 23 percent and in volume decline is at 28 percent. All the major crops – wheat, rice, sugar and cotton – have net negative impact on trade. This implies that overall production in the country is on fall. One should look at the basics – seed technology and proper mix of fertilizer use to improve yields and the need is to look for better exporting or import substituting crops in the mix.
Comments
Comments are closed.