The first quarter of the fiscal year continues its promising trend of slowed imports and rising exports, resulting in trade deficit being down by 2 percent year-on-year, So far so good. The question remains how promising are the improvements in the BoT numbers.
Let’s examine the growth in exports first. As usual, the bulwark of Pakistan’s export, the food group led the growth. Previously, it was the growth in sugar that was buoying exports, this time it was wheat that lent the biggest hand with fruits a far off second.
On one hand, selling wheat in international markets is a better option than allowing surplus to rot away in storage (read “Costs of wheat support price,” published on December 13, 2017). However, the argument against subsidies to promote exports remains. Marginal recovery in global wheat prices has made the wheat subsidy more feasible which ranged from $120 per ton to $169 per ton depending on country and route.
Petroleum group exports nearly doubled with crude petroleum taking the lead; traditionally the biggest market has been Afghanistan. Nearly 10 percent growth in knitwear also supported the growth in exports and this can be attributed mainly to currency devaluation though the incentive package has also played a role.
Coming to imports, the maturing of CPEC projects and slowing down of the economy allowed machinery group imports to come down by nearly 20 percent YoY. The transport group witnessed a nearly 17 percent decline which can be attributed to higher prices due to devaluation as well as higher interest rates. Numbers in this category are expected to drop further going forward.
Imports of palm oil have increased in quantity but decreased in dollar terms as the US China trade war has driven Soya bean prices down which have had a butterfly effect on all edible oils. Soya bean oil imports are less than a quarter of what they were same period last year despite lower prices globally. This is in part because of previous months’ stock piles and in part anticipation of prices decreasing further.
While the slowdown in imports appears more promising as big ticket items like machinery are dropping down, increase in exports is more volatile as it is based on produce. Yes, it is heartening to see value added categories such as plastics among the top 10 items that have led exports, but 62 percent of the rise in exports stemmed from wheat, sugar, fruits, and vegetable. In the short-run, CAD might be controlled by slowed imports but in the long run more focus has to be put on value-added exports.
Comments
Comments are closed.