July 16, 2006	Sunday	Jumadi-ul-Sani 19, 1427

ISLAMABAD, July 15: The country’s trade deficit widened 88pc during the fiscal year 2005-06 to its highest level as oil prices hit a new high and imports of petroleum products set a record.

Official provisional figures obtained by Dawn here on Saturday indicated the trade gap totalled over $11.64bn as against $6.216bn during the FY05.

The import bill reached to record $28.2 billion during the year as against $20.627 billion the previous year, an increase of 36.74pc.

While exports remained short of target by $440m at $16.56 billion during 2005-06 as against the target of $17 billion. However, it increased by 14.92 per cent when compared with the last year’s exports proceeds of $14.41 billion.

The massive rise in trade deficit was attributed to robust increase in imports of machinery and food items — wheat, sugar, pulses. The import of cement and other products required for rebuilding of quake-hit areas also had an impact on the overall trade deficit during FY06.

The government had projected the trade deficit at $4bn for 2005-06. The statistics showed that the country’s trade deficit remained in the range of $1 billion to $2 billion during the last six years.

The rising trade gap is going to have serious implications for Pakistan’s balance of payments particularly on its current account and on the health of the rupee. The rupee had already depreciated by around 5pc against the dollar, which was not officially notified. But it also had a negative impact on the export proceeds.

A senior official said that despite large trade and current account deficit the overall balance of payment for the FY06 had ended in surplus thereby by adding about $0.5bn in foreign exchange reserves.

The current account showed a deficit of $4.76 billion in the first 11 months of FY06 as against $3.12 billion the same period last year, showing an increase of 52.56 per cent. The ballooning current account deficit was a result of the widening trade gap and could result in a weaker rupee.

The workers’ remittances, the second largest source of foreign exchange inflows after exports, totalled $4.612 billion during the FY06 as against $4.168 billion the last year. It would now cover only the nominal part of the deficit.

Efforts to privatise state-run enterprises also were aimed not only at making them more efficient but to get extra foreign exchange to fill in the holes in the balance of payments.

Foreign exchange received through privatisation of state-run entities forms part of foreign direct investment (FRI). The country received an all-time high FDI of $3.525 billion in July-May 2005-06 compared with $1.171 billion received the same period last year.