ISLAMABAD: The trade deficit in merchandise rose nearly 20 per cent year-on-year to $11.775 billion in the first five months of the current fiscal year because of falling exports and increase in imports.

The deficit stood at $2.493bn in November, a rise of 14.3pc compared to $2.181bn a year ago, the Pakistan Bureau of Statistics said on Tuesday.

The drop, along with fall in remittances, has contributed to the rising current account deficit in the first four months of the current fiscal year.

In July-November, the overall import bill rose 8.8pc year-on-year to $19.964bn. In November alone, it increased 10.8pc to $4.255bn. Machinery imports are on the rise because of increase in infrastructure investment, especially construction of roads.

Contrary to this, export proceeds fell 3.93pc to $8.189bn in July-November. In November, however, export proceeds grew 6.21pc, mainly because of increase in exports of textile and clothing. The marginal increase shows that exports of the garments sector, along with other value-added sector, to Europe have started picking up under the GSP+ preferential tariff scheme. Under a three-year strategic trade policy unveiled earlier this year, the government set an annual exports target of $35bn by 2018.

Exporters are awaiting an incentives package of Rs170bn prepared by the ministry of commerce that needs an approval of the prime minister.

On Tuesday, World Bank’s Islamabad-based office released a report asking Pakistan to implement a set of policy actions aimed at improving the business environment, connecting to global value chains, leveraging clusters and strengthening firm capabilities. This was stated in the report “South Asia’s turn: Policies to boost competitiveness and create the next export powerhouse”.

The report argues that increasing productivity of firms in Pakistan and the rest of South Asia is the only sustainable path to improving competitiveness. Today, a broad set of constraints limit the growth and export potential of Pakistani firms in relation to their competitors in the East Asia and the rest of the world.

In order to address these, the report highlights the challenges in the region’s investment climate and draws attention to less-researched areas such as the role of cities and clusters, global value chains, and firms’ abilities to innovate and efficiently use resources, including technology.

“Pakistan, in particular, has important strategic endowments and development potential,” says Illango Patchamuthu, World Bank’s Country Director for Pakistan.

“Located at the crossroads of South Asia, Central Asia, China and the Middle East, Pakistan is at the heart of a regional market with a vast population, large and diverse resources, and untapped potential for trade.”

Pakistan leads many global competitors when it comes to wage competitiveness and proximity to key markets, yet it continues to experience low exports that remain concentrated in the textiles and food sectors. The investment in global value chain capabilities, including physical capital, human capital, institutions and logistics remain limited.

The commerce ministry has yet to receive funds to implement the trade policy to stem the decline in exports. The finance ministry has also withheld Rs30bn collected as Export Development Surcharge (EDS) meant to be be used for facilitating exporters and has allegedly been using those funds for other purposes.

Published in Dawn, December 14th, 2016