PAKISTAN has incurred a deficit of $10 billion in its external trade in the first nine months of the financial year — an average deficit of over a billion dollars a month.

That has happened as imports during the period rose to $22.42 billion while exports just increased to $12.345 billion -- a nominal increase of 3.5 per cent against the federal budget projection of 12 to 14 per cent rise.

The situation began deteriorating from September last after the year began well and improved marginally last month, but there is no assurance of improvement being sustained during the last quarter of the financial year. After the first nine months exports recorded a deficit of $9.985 billion. The fear is that the total deficit for the year may reach $12 to $13 billion by June, close to the foreign reserve.

Commerce minister Humayun Akhtar says the situation is not that bad as the exports this year are still larger than last year, but the fact is that the deficit has increased by 15.1 per cent from $8.687 billion this time last year.

The export performance is far less than what the country desperately needs. The scope for exports is far larger if approached the right way. Anyway Pakistan cannot afford to lose its markets to China, India and Bangladesh.

The large trade deficit which has also created a record current account deficit is now covered by the inflow of home remittances from Pakistanis overseas, foreign investment and privatisation funds. But this year the grace period extended by the group of 26 Paris Consortium after 9/11 comes to an end and the lenders expect us to resume the scheduled repayments. That will exercise pressure on the balance of payments of the country and the World Bank has reminded Pakistan of that now.

Meanwhile, the rise in trade deficit is caused by the high price of oil, which may cost $7 billion this year and the rising international prices of many essential imports, including all metals led by steel and major food items like powder milk and vegetable oil, particularly palm oil.

In the area of exports, after the European Union has cancelled fish imports from Pakistan due to unhygienic conditions at the fish harbour and diverting its fish imports to India and Bangladesh, we are losing poultry exports as well because of bird flu. Already 47,500 birds have been culled in Karachi alone to avoid bird flu.

Now while Pakistan is seeking FTA agreements with China, US and other countries, we are thinking only of the larger opportunities for exports to their markets and not of the possibility of tax-free or reduced tariff goods from those countries flooding our markets. That is happening already in respect of Chinese goods in Pakistan and Pakistan has been forced to levy heavy anti-dumping duties against two kinds of very cheaply sold tiles.

We have to be ready for protective measures against cheap imports as well and have to reduce our cost of production and sale of goods so that we can withstand imported competition as well while competing with foreign goods abroad successfully. Our businessmen have to learn to accept moderate rates of profits instead of opting for high profits all the time.

Meanwhile, there are rejoicings in Malaysia over the non-conclusion of negotiations for the FTA before the US deadline for reaching the agreement expired. And there are widespread protests in South Korea over the FTA agreement which has concluded by its powerful trade unions for fear of massive loss of jobs. The agreement is concluded but is not ratified by the parliament of the two countries.

In Pakistan there is utter complacency or lack of understanding over the full implications of FTA agreements with developed countries. The FTA is a sharp double- edged sword. It offers as many opportunities for larger exports as it offers to the other parties for exporting tax-free or reduced tariff items to Pakistan in plenty.

At the same time, we have made a mess of our fish exports risking $80 million export earnings because of our cussedness and the belief that anything can pass despite stern earnings from the European Union. We have now placed the responsibility for managing the fisheries on the provinces. Let us hope they will do better than under the divided management.

We are also hoping to export wheat to India after an interval of 50 years. Our wheat production is expected to rise to 23 million tones with two million tones surplus while the Indian deficit is five million tones. It is hoped that a good use of the situation would be made. We are also trying to export cement to India after the first consignment ran in to some difficulties.

If we have to achieve our export target of $18.6 billion we have to try far harder and rationally than we have been doing and try to limit our imports to the ceiling of $28 billion.

We do not know at the moment how far the Chinese industrial estates, which are to come up in Pakistan in collaboration with Pakistani businessmen, will be helpful in increasing our exports particularly to China. It depends on the kind of industries on which the Chinese invest and develop competitively.

While the import budget at $28 billion is very large, the government does not want to reduce it as apart from oil, it consists of industrial machinery, electrical equipment, raw material for industries and automobiles which bring large revenues to the state. Reducing imports would also mean a drop in the revenues which the government does not like but also the reduction in the import of machinery and raw materials will affect economic growth and increase unemployment which the government cannot risk.

But it is wrong to say that the key players in the government do not know the reasons for the small exports and its creeping increase and the commerce officials have kept the government in the dark regarding the real reasons. The newspapers are full of the reasons why the exports are poor. And the top officials are told the reasons at numerous seminars workshops they attend which include the high cost of production in Pakistan and the heavy price of doing business.

The international financial institutions have spot lighted the reasons for the poor exports and have offered financial help to implement the necessary reforms. The fact is that while there is so much talk about reforms, first generation reforms and second generation reforms, there is a reluctance to change, to break away from old habits and bureaucratic traditions. There is a reluctance to trust non-officials despite massive privatisation programme of the government and the new public-private partnership.

A report on the state of commerce in Pakistan, largely in respect of the private sector, has been on the table of the commerce minister for two years he says, but since decisions have not been taken on the report, it has been gathering dust although it may be the first official study of the domestic commerce which needs detailed scrutiny now.

Radical changes are essential in the commercial sector, both on the part of the government and the private sector. The earlier such changes occur the better, in a highly competitive international market world where the weak and the vacillating are left far behind.