ISLAMABAD: Pakistan’s trade deficit in merchandise rose nearly 29 per cent year-on-year to $17.428 billion in the first seven months of the current fiscal year because of falling exports and increase in imports.

The deficit stood at $2.957bn in January, a rise of 75pc compared to $1.688bn a year ago, the Pakistan Bureau of Statistics said on Thursday.

The drop in export proceeds, along with fall in remittances, has contributed to the rising current account deficit this fiscal year.

In July-January, the overall import bill rose 13.7pc year-on-year to $29.113bn. In January alone, it increased 37.1pc to $4.737bn. Machinery imports are on the rise because of increase in infrastructure investment, especially construction of roads.

Export proceeds during the seven-month period fell 3.2pc to $11.685bn. In January, however, export proceeds grew 0.74pc, 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 sectors, to Europe have started picking up under the GSP+ preferential tariff scheme.

Under a three-year strategic trade policy unveiled last year, the government set an annual exports target of $35bn by 2018. However, the policy, announced in April 2016, has yet to be implemented.

Contrary to this, the prime minister has announced Rs180bn subsidy package for the textile, clothing and four other sectors, namely sports, surgical, leather and carpets. The package will be applicable until June 30, 2018.

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 meant to be used for facilitating exporters and has allegedly been using those funds for other purposes.

According to a World Bank report titled ‘South Asia’s Turn: Policies to Boost Competitiveness and Create the Next Export Powerhouse’, Pakistan needs to implement a set of policy actions aimed at improving the business environment, connecting to global value chains, leveraging clusters and strengthening firm capabilities.

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.

To address these issues, 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.

Published in Dawn, February 10th, 2017