10 July 2004	Saturday	21 Jamadi-ul-Awwal 1425

KARACHI, July 9: Pakistan witnessed a huge trade deficit of $1.622 billion in the last quarter of fiscal year July-June 2003-04, more than half the total trade deficit of around $3.2 billion seen in the entire fiscal year.

Imports in April-June 2004 totalled more than $4.988 billion whereas exports stood at $3.365 billion. In full fiscal year 2003-04, import bill reached at $15.473 billion whereas export earnings totalled $12.273 billion.

A close analysis of the data released by the Federal Bureau of Statistics or FBS shows that the country saw a trade deficit of $419 million in April, $669 million in May and $534 million in June 2004.

That is, monthly deficit, in fourth quarter of the last fiscal year, averaged at $540 million-more than three times the average monthly deficit of about $178 million in first three quarters.

That explains well why the rupee, that had gained 30 paisa or half a percentage point value against the US dollar in the first three quarters, lost 61 paisa or more than one per cent of its value in the fourth quarter.

The rupee had gone up from 57.81 a dollar at end- June 2003 to 57.31 at end-March 2004, but it fell to 58.12 at end-June 2004. The cyclical impact of the change of trend in exchange rate movement continues and it is a key factor behind the recent fall in the rupee value.

The local currency has shed 16 paisa to a dollar so far this month, coming down from 57.81 at end-June to 58.28 on July 9, as importers have stepped up dollar buying, fearing further fall in the rupee value.

Senior bankers say dollar buying has become so intense not only by commercial importers but also by corporates making external payments that the rupee seems set to lose more weight.

Pakistan is ready to allow a gradual weakening in its currency value in the current fiscal year to benefit exporters but in doing so it would keep its exchange rate competitive vis-e'-vis other currencies of the region, most notably Indian rupee. Traditionally, monetary officials here closely follow the movement of exchange rates in India, a key competitor of Pakistan in the international market.

Incidentally, in the first nine days of this month the Indian rupee has rather gained 22 paisa or about 0.5 per cent value against the dollar, rising from 45.98 a dollar on June 30 to 45.76 a dollar on July 9. A falling Pakistani rupee at a time when the Indian rupee is rising may doubly benefit local exporters.

What else is going to benefit exporters and thus improve the economy is that Pakistan's trade deficit has expanded in April- June primarily due to higher spending on import of machinery.

Analysis of FBS data shows that in April-June this year, import of machinery group consumed more than $1.5 billion up from $888 million during the same period of last fiscal year.

The breakup of $1.5 billion import of machinery shows that $688 million was spent on purchase of aircraft, which according to banking sources, reflected the payments made by Pakistan International Airline for the Boeing 777 inducted into its fleet.

This means that import of machinery other than aircraft consumed $812 million, a little less than April-June 2003 machinery import bill of $888 million.

Whereas the induction of Boeing 777 will help PIA improve its financial health thereby sparing the national accounts of the drain the national flag carrier used to cause, keeping pace in import of textiles' and other machinery will help increase production.