Measures to cut trade deficit on the cards

Updated 05 Nov 2017

Email

The trade deficit reached an all-time high of $32 billion last year. It posted a growth of 30 per cent in the first quarter of 2017-18.
The trade deficit reached an all-time high of $32 billion last year. It posted a growth of 30 per cent in the first quarter of 2017-18.

ISLAMABAD: The Ministry of Commerce has suggested measures to curtail the widening trade deficit in the next few months.

It has identified several factors that caused an increase in the trade deficit during the last few years. The measures are part of a report that was compiled after deliberations with different government agencies, including the State Bank of Pakistan and Federal Board of Revenue. It was also submitted to parliament.

The trade deficit reached an all-time high of $32 billion last year. In the first quarter of 2017-18, the trade deficit posted a growth of 30 per cent.

The surge in imports is driven by four factors: demand, price, investment and shift in the consumption pattern.

Demand for petroleum products and raw material is inflexible because Pakistan is not an oil-producing country. Similarly, lower domestic production necessitated higher imports of pulses and certain perishable commodities, like garlic, tomatoes and other vegetables.

The report said unit prices of certain products also increased over the past few years. For instance, the per-unit price of palm oil increased 16.67pc, pulses 16.82pc and medical products 15.91pc last year.

Imports of vehicles for the China-Pakistan Economic Corridor (CPEC)-related projects and public transport also contributed to the rising import bill of the country.

Moreover, imports of power generation machinery, construction machinery, transport equipment and office machinery and equipment also surged due to a healthy growth in construction and energy sectors.

The shift from the domestically produced natural gas to liquefied natural gas (LNG) is reflective of the change in the consumption pattern. The additional share of LNG worth $0.65bn increased imports for the current fiscal year by 131.5pc. LNG imports started in March 2016, bloating the import bill.

According to the report, lower demand for rice, leather and textile goods from key markets, like Saudi Arabia, United Arab Emirates (UAE) and Philippines, has resulted in negative growth in exports. Cement exports continued the downward trend due to high competition in South Africa and Afghanistan.

The surge in domestic demand for cement consumption also discourages its exports. Cotton exports declined mainly due to low domestic production.

Moreover, the Ministry of Commerce also identified six cross-cutting factors that are hampering growth in exports.

Six markets – United States, China, UAE, Afghanistan, United Kingdom and Germany – account for more than 50pc of national exports. The lack of market diversification and inadequate value addition are hampering growth in exports.

The ministry also noted that the conflict between the tariff policy and currency appreciation is also affecting competitiveness.

According to the report, the premier’s export enhancement package will improve the competitiveness of exportable products. An amount of Rs6bn has been allocated for the current fiscal year for the development of the export sector in terms of technology upgrade, product development, branding and certification development support and drawback of local taxes and levies.

To curtail the import of luxury items and non-essential goods, regulatory duties have been levied on 731 items.

Commerce Secretary Younus Dagha said the impact of these measures will be visible in the import data, which will be released next week by the Pakistan Bureau of Statistics.

He said the trend shows a decline in imports and increase in exports in October.

Published in Dawn, November 5th, 2017