PAKISTAN’S external trade deficit within the first 10 months of the financial year has soared to over $11 billion, which is 16.8 per cent higher than it was in the same period last year.
With exports inching up by only 3.36 per cent to a total of $13.3 billion in 10 months, the fear is that total deficit for the year will be $14 billion as compared to the last year’s deficit of $12.13 billion.
Even otherwise, a large deficit of $9.4 billion was originally projected, with exports fetching $18 billion. But imports, which have been rising by 9 per cent, have given rise to the fear that the import bill may this year jump to $30 billion, leaving a deficit of $14 billion and that will be in excess of the foreign exchange reserve of $13.7 billion now.
That has resulted in a current account deficit of over $6 billion in the first nine months of the financial year, which is straining the government’s capacity to meet its external commitments in the short-term. The Asian Development Bank had already cautioned the government about it.
The big current account deficit is despite home remittances by overseas Pakistanis to the tune of over $4 billion and foreign direct investment to the same extent.
The State Bank of Pakistan, however, says that textile exports have grown by 10.3 per cent during July–March. So the government has allowed import of long staple cotton from India via land route-- Wagah border-- instead of sea which would have cost Rs200 more per bale. The textile industry has reasons to be happy over this development.
The Economic Coordination Committee (ECC) of the cabinet has also decided to allow gas companies to set up power plants using low BTU gas.
Trade and industry want the government to help them compete in the international market. But the government is taking it easy because of $6.5 billion foreign direct investment it expects this year and the total home remittances of over $5 billion.
The government has promised more relief to exporters, particularly of textiles. What kind of relief is provided to the exporters in the forth coming budget remains to be seen.
Earlier, the government was confident it could manage such situations because of its sizable foreign exchange reserves. The reserve could then meet eight to nine months’ imports but now it could meet only five to six months of imports bill, which is rather small in view of the soaring import bill.
Meanwhile, Pakistan has opened free trade agreement negotiations with Egypt, a tough customer, and Malaysia, with whom we have been having FTA negotiations, wants Pakistan to reduce heavy import duty on palm oil if the latter wants concessions in textile exports to that country (Malaysia).
You sign an FTA at a price. It is not one-way traffic but a two-way operation. But Pakistan’s basic problem is its small exportable surplus compared to its large needs. And that arises out of its small industrial base and a narrow base with its focus on textiles, and the large population with as many conspicuous consumers, added to that is the higher prices of Pakistan’s exports because of the high cost of production which reduce their competitiveness abroad. At the same time Pakistan needs a variety of imports which inflates its import bill.
The largest single item of import now is oil with its high prices. The oil import bill is expected to rise to $7 billion while the earlier estimate was $6 billion. Much of the oil is used in producing power by the government power agencies as well as the privately owned power producers.
The need for furnace oil and diesel is increasing with the 12 per cent rise in power consumption annually. If 2.3 million air-conditioners are added every year, the magnitude in the rise of power consumption is understandable.
The second item of import is machinery for industrialisation and replacement of old equipment. Lately machinery import has declined as compared to earlier years of industrial rehabilitation and expansion.
The third major item of import is industrial raw materials to feed industries mainly export-oriented industries.
Cars import alone costs over a billion dollars and it is also a major source of revenue for the government so despite falling rate of customs duty, the custom revenue has been rising.
There are also a large number of items of import to feed the demands of the expanding consumer credit. The expanding pop music industry also calls for large imports. And homes and housing societies need a great deal of imported fittings and fixtures ranging from fancy light fittings to modern water equipment.
Some of these items are smuggled into the country but more and more are coming through imports. Import of such expensive items is increasing as more and more housing societies come into existence in Islamabad, Karachi and Lahore.
Imported TV sets are getting larger and larger, in addition to a great many steel and aluminium fittings imported for such expensive housing. Most of such luxury housing accessories are acquired through quickly-earned money such as through stock exchange or real estate or through corrupt income from official deals.
What we are developing is not a real economy but a substantially phoney one marked by its glitter and glamour. The government wants this process to continue as it regards it as a process of continuous growth and does not want to arrest it.
When it comes to foreign direct investment, not only the profits are repatriable but also the capital should be well spent and the country should gain by that to make such repatriation easy.
It is imperative now that the industrial base should be broadened and industrial production increased manifold, using mostly indigenous raw materials. The frenzy for consumption should come down, and the focus should shift to production.
Conspicuous consumption should be discouraged in a country in which, according to official figures, 25 per cent of the people live below the poverty level of a dollar-a-day.
We have a large population and there is not enough for consumption for all unless we produce far more than we do now.
