ISLAMABAD: The government’s battle against bloated trade deficit is bearing fruits as it shrank by 29 per cent in the first month of this fiscal year, driven largely by a decline in non-essential luxury items.

The trade deficit decreased 28.84pc to $2.27 billion in July, from $3.19bn over the corresponding month of last year.

The government has projected to reduce the annual trade gap to $27.476 billion by June 2020.

In 2018-19, the trade deficit fell to $31.82bn from $37.58bn over the previous year, registering a decline of 15.33pc. This contraction can primarily be attributed to a steep fall in the overall import bill even though export proceeds posted a mixed trend during the same period.

Official data available with Dawn show that the value of imported goods in July came in at $4.15bn, down 14.07pc from $4.89bn over corresponding month last year.

The decline in imports is mainly due to the imposition of regulatory duties on luxury items and automobiles.

Moreover, the government also slapped a ban on import of furnace oil last year, in addition to a number of policy interventions including improved energy supply, import substitution drive, economic stabilisation, and currency devaluation.

According to a customs officer, the curtailment in the flow of imports could have been even more pronounced had the government not waived off duty on 1,639 raw materials in this year’s budget. As a result, the import of these raw materials recorded a growth of 28pc during July.

However, the rise in import of raw materials and machinery is expected to accelerate industrial growth in the country. “We are expecting that duty waiver on raw materials and machinery will boost economic activities in the current fiscal year”, the official said.

On account of higher growth trajectory, the government projected imports to increase by a marginal 0.8pc and reach $53.664bn in 2019-20, from an estimated total of $53.248bn for 2018-19.

Pakistan’s merchandise exports grew 14.6pc to $1.88bn in July, from $1.64bn in same month of FY19. The encouraging data comes owing to multiple currency depreciations in the past one year that have seen the rupee sink significantly.

According to the government plan, which envisages higher growth in exports sector in the backdrop of positive global outlook, improved domestic infrastructure, low cost energy supply to export sector and competitiveness gained due to depreciation of the rupee. The exports have been projected at $26.187bn for 2019-20, up from $24.656bn estimated for FY19.

To achieve the target, the government has already reduced the cost of raw materials and semi-finished products used in exportable products by exempting them from all customs duties in its last budget.

The Commerce Division has yet to finalise its trade policy despite a lapse of one year. Similarly, the government’s claim to introduce an industrial policy with a deadline of last December was also missed.

In 2018-19, export proceeds shrank by 1pc to $22.97bn, as compared to $23.21bn recorded in FY18.

Published in Dawn, August 17th, 2019