EDITORIAL: Pakistan exports declined by 24 percent in July compared to the month before — 2.219 billion dollars against 2.918 billion dollars — while imports declined by 46 percent during the two months — from 4.96 billion dollars to 2.642 billion dollars.
While details of which items are responsible for the decline in imports have not been released Business Recorder has learnt that the State Bank of Pakistan (SBP) has taken appropriate measures to tighten the process of approval of letters of credit for spare parts, capital goods and remittance outflows that together with the decline in the international prices of oil and products as well as cooking oil has reduced the country’s import bill.
An observation, however, is in order. Exports in July 2022 were 2.219 billion dollars while the comparable figure for July 2021 was 2.34 billion dollars or a decline of 5.1 percent while imports registered at 4.861 billion dollars in July 2022 against 5.575 billion dollars in July 2021 or a decline of 12.8 percent. In rupee terms, however, exports increased from 373,412 million rupees in July 2021 to 489,624 million rupees in July 2022 or a rise in exports of 31.12 percent while imports rose from 889,782 million rupees in July 2021 to 1,072,493 million rupees in July 2022, which is a rise of 20.53 percent.
Trade deficit in dollar terms registered negative 18.3 percent (from negative 3.235 billion dollars in July 2021 to negative 2.642 billion dollars in July 2022) while the trade deficit improved by 12.88 percent in rupees terms — from negative 516,370 million rupees in July 2021 to negative 582,869 million rupees in July 2022. The difference lies in the unprecedented rupee depreciation witnessed in July 2022 with the State Bank of Pakistan’s (SBP’s) weighted average customer exchange rate estimated at 159.6 rupees to the dollar in July 2021 against 220.63 rupees to the dollar in July 2022.
Evidence, however, suggests that not only a decline in the international commodity prices, which impact majorly on both exports and imports of Pakistan, but also some measures taken by the SBP have contained imports and therefore the trade deficit has shrunk. In this context, it is relevant to note that in 2019 when the current account deficit was also a source of concern the then economic managers had not only relied on rupee depreciation as a means to contain imports but also a high policy rate.
Today the policy rate is 15 percent, against 13.25 percent in 2019 and the real effective exchange rate was as low as 90.97 in June 2019, rose to 93 in June 2020, 99.7 in June 2021 and by May 2022 provisional estimates (the SBP has not yet uploaded data for June and July 2022) it had again plummeted to 93.56. In other words, data indicates that the rupee remains undervalued though in Pakistan the linkage between an undervalued rupee and higher exports has never been conclusively established.
It is, however, important to note that there is one massive advantage available to the economic team today in terms of a steady rise in remittance inflows in spite of studies that had cautioned countries with large emigrant workforce that remittances would decline over time. While July 2022 figures have not yet been uploaded yet remittances have been on the rise — from 21.7 billion dollars in 2019 to 23 billion dollars in 2020 to 29.7 billion dollars in 2021 and peaked in April 2022 at 3.125 billion dollars with the total 2022 figure of 31.2 billion dollars.
Remittances when added to the trade deficit narrows down the trade deficit in dollar terms July-June 2022 to a little less than 18 billion dollars. This figure can be worked at; however, the country’s heavy indebtedness particularly in dollar terms makes Pakistan situation acute.
It is hoped that the government would proactively target limiting its annual reliance on external borrowing to pay off past liabilities as and when they become due, estimated at 21 billion dollars in the current year, instead of budgeting over 35 billion dollars for the year, which is well above the annual inflows during the PTI administration, and seeks to bring in savings which would require sacrifice on the part of all the recipients of current expenditure.
Copyright Business Recorder, 2022
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