Trade deficit contracts 29pc in July

Mubarak Zeb Khan Published August 17, 2019

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

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Mubarak Zeb Khan is a senior staff correspondent for Dawn, bringing over two decades of experience to his coverage of political economy, trade, taxation, and public finance. He is a former Innovation Journalism fellow at Stanford University and a Chevening Scholar. He tweets @mubarakzebdawn.

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Khan - PTI

Aug 17, 2019 09:45am

I am a PTI supporter, but please state the facts. Economy of Pakistan is shrinking. Trade deficit is decreasing due to the reduced amount of trade and that is not a good sign at all. Moreover the deferred payments of oil is taking part in this overall picture. It seems that the Babus in Islamabad are masterfully manipulating the numbers and even misguiding Imran Khan.

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Fire

Aug 17, 2019 10:03am

I am a noob. Can anyone explain how rupee depreciation increased exports from $1.88bn to $1.64bn? Afaik, if I previously exported Rs 100 worth of goods, at Rs 125 for dollar, that would make US$0.8 worth of goods. If now I still export Rs 100 worth of goods, at Rs 160 for dollar, that would make US$0.625 worth of goods. That means dollar amount would decrease.

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SHAHID SATTAR

Aug 17, 2019 10:33am

What remains to be checked are the figures of unaccounted economy, including the Afghan Transit Trade, goods coming from third country sources like the U.A.E., and the trade from the northern borders which only comprises of smuggling in the name of imports from China. And of course, the amounts of under invoicing and mis-declarations of the imports made by the dry ports and at the sea ports, which will only come to light after such passage of time as to make any recoveries or punishments for the offenders, both in government services and the businesses, ineffective and impossible.

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kashif

Aug 17, 2019 10:33am

"Driven largely by a decline in non-essential luxury items." So its actually a food of destruction, I mean what we lost is the industrial and productive imports, while those whom having money form other means than business, either by government or by corruption they still have it, by which they are still spending which is causing cost push inflation while to curb it government is increasing interest rate and devaluing currency which is causing cost pull inflation, and by these two factors we have hyper inflation, which eventually transmute in to stagflation.

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Sohail Calgary

Aug 17, 2019 11:01am

Heading in a right direction! Good job PM IK

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Shyam Bhagat

Aug 17, 2019 11:40am

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

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Saad khan

Aug 17, 2019 12:42pm

Finally some positive news for this govt. Hope the positivity continues

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deva

Aug 17, 2019 02:04pm

Economy is slowing down at fast rate. Else dont seeing this reduce to increase in export. This is oneway good, it will support rupee hopefully

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Shakeel Ahmed

Aug 17, 2019 06:15pm

It seems govt's policies are finally bearing fruit now. Factoring in the remittances($2.03 Billion) for the month of july, CAD is supposed to come down to around $350 million. Hopefully the trend continues throughout the year. In hindsight, this IMF program could prove a real handful in terms of rupee devaluation if right measures are taken by the govt to substitute the imports and enhance the exports.

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Vikas

Aug 17, 2019 06:45pm

The whole economy has contracted 29%. What is the big news that imports have gone down and so the trade deficit?

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Fastrack

Aug 18, 2019 06:12am

Remarkable.

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Kamran

Aug 18, 2019 02:44pm

@Fire, to make it simple for a nob, exports have increased from 1.64 billion usd to 1.88 billion usd i.e 14 %. In rupee terms it has increased even higher. If previously pk exported 100 rupees worth of goods @ 100 rupees to a dollar, now we exported almost 182 rupees worth of goods. After taking into account depreciation of 60 % it translates into growth of 14 % in us dollars. In rupee terms it shows growth of 80 %. However the depreciation rate was lower not 60 %, so actual growth in rupees in is bit lower.

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