July 23, 2006	Sunday	Jumadi-ul-Sani 26, 1427

KARACHI, July 22: The final figure of trade deficit touched $12 billion for the fiscal year 2005-06, creating serious concerns for economic mangers of the country.

The figures posted on State Bank website showed that exports earned $16.468 billion while imports consumed $28.581 billion during the last fiscal year. It is a record trade deficit that puts immense pressure on country’s foreign exchange reserves. The import was dominated by high oil prices that hit the economies of developing countries like Pakistan.

Food items and auto sector also got massive weight in the list of imports. The country also failed to achieve the export target of $17 billion, while the import target exceeded by over $6 billion.

The Trade Policy 2006-07 announced last week set an export target of $18.6 billion and the import target at $28 billion. The import surpassed the figure of $28 billion in 2005-06.

Experts and economists do not see any decline in oil prices in the international market in the near future which means that the government will not be able to limit its import target to $28 billion for the fiscal year 2006-07.

The huge trade deficit also put immense pressure on current account deficit which was financed by selling local units through privatisation, foreign direct investments and remittances sent by overseas Pakistanis.

Analysts said the sale of local units would be more difficult this year after the Supreme Court annulled the sale agreement of Pakistan Steel on June 24 this year. They believe that the privatisation could hardly bring foreign exchange for the country. The amount of PTCL sale had a major share in the FDI in 2005-06.

The telecommunication sector, which played a key role in the increase of FDI volume, has reached a saturation point and more investments in this sector are not in sight.

“Those telecom companies which came late in Pakistan are struggling to earn high profit despite growth in the sector,” said Abid Anis, a telecom expert. He said only new innovations could bring some investment in this sector.

Analysts have been identifying the weakness in the policy and urging the government to improve the trade balance which could eat up the hard-earned foreign exchange reserves of the country.

The government has been relying on financing trade deficit instead of making strategy to bridge the gap.

“Financing trade deficit is not sustainable, as the resources of the country are going to be exhaust in the next two years. After that the government will start borrowing to meet the rising trade deficit,” said a researcher at a local brokerage house.

He said if the rising gap was not arrested, the country would again fall in debt trap and debt servicing would increase that would hit development expenditure. “This is not an assumption that the country is heading towards debt trap. In reality, trade deficit has forced us to borrow from donors or the market,” the researcher said.

The Trade Policy 2006-07 has already set a trade deficit of $9.4 billion. Even if the deficit is restricted to this figure, it would be difficult for the government to arrange financing if privatisation and FDI fail to respond.