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ISLAMABAD: The government Thursday said that significant rise in import bill due to broad-based surge in global commodity prices, Covid-19 vaccine imports and demand-side pressures, all contributed to widening trade deficit, ie, by 55.5 percent ($ 30.1 billion) during the first three quarters, ie, July-March 2021-22 as compared to corresponding period of 2020-21.

The Economic Survey 2021-22, which shows performance of PTI government, says that after a slight contraction of real GDP in FY2020, Pakistan’s economy rebounded in FY2021 and FY2022. Many policy measures were initiated to support export-oriented industries and facilitating these firms to increase export earnings.

During Jul-Mar FY2022, goods exports grew by 26.6 percent and amounted to $ 23.7 billion, whereas services exports grew by 17.1 percent and amounted to $ 5.1billion. Despite the encouraging export performance, the country’s imports have also risen significantly. The broad-based surge in global commodity prices, Covid-19 vaccine imports, and demand-side pressures, all contributed to the rising imports. Resultantly, trade deficit grew by 55.5 percent amounted to $ 30.1 billion which is historically high.

Remittances which ease pressure on trade deficit of both goods and services recorded at $ 22.9 billion during Jul-Mar FY2022 and posted a growth of 7.1 percent. This highest level of workers’ remittances was not sufficient to offset trade deficit. Thus, current account deficit recorded at $ 13.2 billion during FY2022. Further, low performance of financial account during the period not only resulted in depletion of foreign reserves but also brought exchange rate under pressure.

July-May trade deficit widens 57.85pc to $43.334bn YoY

The Survey maintains that due to pro-business measures and recent rupee depreciation, exports marked an impressive growth of 25.0 percent during Jul-Mar FY2022 amounting to $ 23.3 billion as compared to $ 18.7 billion in the same period last year. Around two thirds of the increase came from the textile sector, especially from the high value-added segment.

Pakistan’s textile exporters capitalized on the policy support available – including the SBP’s concessionary refinance schemes for working capital and fixed investment, and the regionally competitive energy tariffs – and managed to ship higher volumes to key destinations (such as the US, UK and EU). Higher cotton prices also helped to increase the export unit prices both low and high value-added textile products. Apart from textiles, rice exports also rebounded during Jul-Mar FY2022, mainly due to the non-basmati variety.

The economy stabilized after the lifting of lockdowns at the start of FY2021, various policy measures were taken to support industrial activity and resume the growth momentum. The policy incentives taken to increase exports included: (i) supply of energy to export oriented sectors including textile at regionally competitive rates i.e. electricity at US cents 9/kWh all-inclusive and RLNG at US$ 6.5/MMBtu all- inclusive during FY 2022.

However, existing tariff ofUS$6. 5/MMBtu for Captive Power (self-power generation) was revised to US$ 9/MMBtu from November 15, 2021 to March 31, 2022;(ii) release of Rs 16 billion under Duty Drawback of Taxes and Levies (textiles & non-textile) till third quarter of FY2022;(iii) continuation of duty-free import of textile machinery to encourage investment in the textile sector and enhance capacities; (iv) addressed the tariff anomalies identified during the budget exercise for the Financial Year 2021-22, and subsequently rationalized Customs Duty (CD), Additional Customs Duty (ACD) and Regulatory Duty (RD) on different tariff lines;(v) addressed tariff anomaly under SRO 655 (1)/2006 by the removal/reduction of ACD for vendors and on the import of Heavy Commercial Vehicles in CKD condition.

Analysis of group wise data suggests that all groups of exports registered an impressive growth. Food group increased by 18.9 percent and reached $ 3.9 billion during Jul-Mar FY2022 as against $ 3.3 billion to the same period last year. Within the food group, rice exports increased both in quantity and value by 22.8 percent and 15.0 percent, respectively. Exports of rice were recorded at $ 1.8 billion during Jul-Mar FY2022 as compared to US$ 1.5 billion during corresponding period last year.

The Basmati rice exports increased both in quantity and value by 26.1 percent and 21.6 percent respectively, during Jul-Mar FY2022. One major contributor to this increase is exports to Kazakhstan, which grew by over 200 percent during Jul-Feb FY2022. Besides, there was higher demand from Madagascar, Somalia and Malaysia. Price of Pakistan’s basmati rice remained lower than last year, making it more competitive in the international market.

Textile group witnessed a growth of 25.4 percent during Jul-Mar FY2022 and reached US$ 14.2 billion compared to US$ 11.3 billion during the corresponding period last year. Pakistan received higher foreign orders for finished goods, which consequently increased demand of textile intermediaries’, i.e. cotton fabric and yarn and led to enhancing capacity development as well as the value chain. Increased international prices of cotton helped in increased export unit values of Pakistan’s major textile products.

The total imports during Jul-Mar FY2022 clocked at US$ 58.9 billion as compared to US$ 39.5 billion in the same period last year, showing a growth of 49.1 percent. The increase in imports is recorded in all the major groups. Multiple factors have contributed to the steep rise in imports during Jul-Mar FY2022. Rising global commodity prices contributed significantly to the increasing import volume.

Disaggregated data on imports indicates that the energy group is the largest source of the increase in imports, contributing over one-third to the YoY increase in imports during the period. Similarly, price-led pressures were also noted across non-energy commodities imported by Pakistan, such as edible oil (palm and soybean), sugar, tea, fertilizer, and steel. At the same time, the domestic demand for imported raw materials (such as cotton and steel) and capital goods was also elevated in the wake of the policy induced economic rebound.

The food group with a share of 12.2 percent in total imports, increased by 15.5 percent during Jul-Mar FY2022, and its import clocked at US$ 7067.7 million as against US$ 6,121.3 million during the comparable period last year. Within food group, surge has been observed in the import of tea, sugar, palm oil, soya bean oil and pluses.

The import of petroleum group increased by 96.1 percent during Jul-Mar FY2022 and reached US$ 14,812.5 million as compared to the US$ 7,553.9 million during corresponding period last year, mainly due to historically high global oil prices. Within the petroleum group, the petroleum products increased both in quantity and value by 20.0 percent and 111.4 percent, respectively. Petroleum crude increased tremendously in value by 82.2 percent and quantity increased meagerly by 3.5 percent during Jul-Mar FY2022.

Pakistan imports from countries like China, Saudi Arabia, UAE, and Indonesia constitute around 50 percent of the total imports. The share of imports from China has increased from 27 percent to 28 percent during Jul-Mar FY2022. Share of imports from USA has decreased from 6 percent to 5 percent during the period under review

Though supportive measures helped in encouraging export performance during Jul-Mar FY2022 however significant rise in imports bill due to broad-based surge in global commodity prices, Covid-19 vaccine imports, and demand-side pressures, all contributed in widening trade deficit by 55.5 percent ($ 30.1 billion). Even ever highest remittances of $ 22.9 billion were unable to offset the highest trade deficit.

Copyright Business Recorder, 2022

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