THIS refers to the editorial ‘Trade deficit widens’ (Jan 11). With the fall in oil prices almost by 40pc since June 2014, people were expecting a sigh of relief in the shape of decrease in prices.

Although the prices of a few commodities, particularly fuel, were reduced by the government, the trade deficit widened to 34pc by the end of December 2014 as reported by Pakistan Bureau of Statistics (PBS). What caused the widening gap between exports and imports and why was this gap not reduced due to a fall in the prices of oil which constitutes more than 34pc of Pakistan’s imports?

Though POL is the major component of Pakistan’s imports, this is not the only importable item in merchandise trade. As reported by PBS, owing to the reduction in POL prices, its share in total imports was reduced to 31pc in July-August 2014 which was 31pc in the corresponding period of 2013, showing a 10pc decrease.

Cumulative imports of POL during the period July-August 2014 amounted to Rs250,520.77 million as against Rs267,799.04 million during the corresponding period of last year showing a decrease of 6.45pc. Then what is the reason behind swelling import bill?

PBS divided the imports in seven major groups; although the imports of petroleum group declined by 6.45pc, there has been a substantial increase in the imports of other groups, like machinery, textile, chemicals , and metal, which adversely affected the trade balance.

Likewise, exports declined by 4.31pc in July-December 2014, therefore, net trade deficit can’t only be attributed to rise in imports’ bill but also to the reduction in exports, which could be due to supply side shocks and shortfall in energy supply during this period.

Muhammad Akram

Islamabad

Published in Dawn, January 25th, 2015

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