Services sector's trade deficit swells by 23 percent in FY10-11

The country's services sector trade posted a deficit of over two billion dollars, widening the gap by 23 per cent, during the last fiscal year (FY10-11) mainly due to high imports and slowdown in exports. During the initial months of FY10-11, the services sector's deficit was on decline and overall deficit was less than of fiscal year 2010.
The deficit was shrunk by 28 per cent to $1.4 billion in first 10 months of the last fiscal year mainly due to massive increase in exports and decline in imports. However, during the last two months of FY11, the services sector's imports registered massive increase, which reversed the declining deficit. Eventually, the deficit of the sector surged to over two billion dollars mark at the end of FY11.
Analysts said that the massive increase in services sector's deficit in last fiscal year was largely contributed by the high imports and high payments on account of government services. Transportation, travel and information technology are said to be responsible for the high services trade deficit. According to State Bank of Pakistan (SBP) report, services sector trade statistics again deteriorated during the last fiscal year and deficit of services trade, which was on decline till April, registered an increase of $445 million in FY11.
According to the SBP, services sector deficit went up by 26.33 per cent to $2.135 billion in FY11 as compared to $1.69 billion in FY10. The high imports of services sector in the last two months are responsible for the massive increase in the deficit. Detailed analysis of services sector revealed that export and imports of services trade continued to grow during the last fiscal year, but the imports posted a high increase of 10 per cent as compared to 4 per cent increase in exports of services trade.
With a slight increase of $226 million, the services sector exports stood at $5.455 billion in FY11 as compared to $5.229 billion in FY10. Services sector's imports registered an increase of 10 per cent during the period under review. With the surge, overall services imports reached $7.59 billion mark in last fiscal year against the imports of $6.919 billion in fiscal year 2010, depicting an increase of $671 million.
On month on month basis, services sector's deficit in June 2011- the last month of FY11, stood at $361 million with $416 million exports and $777 million imports. The country earned $1.454 billion on account of transportation services, $350 million from travel, $226 million from communication, $18 million from construction services and $2.37 billion on account of government services in FY11.
Similarly, the country earned $54 million on account of insurance, $70 million on account of financial services, $217 million information technology and $3 million on account of royalties and licenses.
On the other hand, transportation payments stood at $4.029 billion, travel $972 million, communication $176 million, construction $72 million, insurance $146 million, financial sector $136 million and computer and information sector payments at $177 million during the period under review. In addition, some $122 million was paid on account of royalties and $614 million was paid for government services.
The country suffered massive deficit on the account of transportation, as it has only one national flag-career, Pakistan National Shipping Corporation (PNSC), which is not capable to meet the requirements of importers and exporters. Deficit in transportation stood at $2.575 billion in last fiscal year, with $4.029 billion payments and $1.454 billion earnings.