Growing trade deficit

Published September 4, 2021

LAST month’s drastic increase in Pakistan’s trade deficit, or the amount by which the cost of a country’s imports exceed the value of its exports, has raised serious concerns over the stability of our balance-of-payments position as the current account deficit for August is now widely anticipated to be close to June’s figure of $1.6bn or twice the July number of $773m. If the trade balance deteriorates further on the back of a stronger build-up in imports to support the ongoing consumption-based economic recovery going forward, CAD for the full fiscal year would likely breach the State Bank’s estimate of 2pc-3pc of GDP during FY22 by a big margin. No wonder many economic experts who had supported the PTI government’s growth strategy until now, are nervous and have started calling for ‘urgent action’. The 10pc depreciation in the value of the home currency in the last three and a half months, and a painfully slow turnaround in exports have forced many to suggest imposing an export emergency and curbs on luxury imports in addition to boosting interest rates, thus vindicating the stance of those who advised the government against spending its way to economic revival.

Meanwhile, the government has defended the 133pc growth in the trade deficit to just below $4.1bn in August from a little over $1.7bn a year ago and by 24pc from $3.3bn in July. It contends the enhanced import of machinery and raw material reflect ongoing investments by businesses in capacity expansion and new projects in the textiles, leather, chemicals and other sectors. The prime minister’s trade adviser claims that the government has a backup plan to sustain the pressure on the external sector. Does it? Indeed, the accumulation of the highest ever foreign exchange reserves in the last couple of years and remittances by Pakistanis abroad will keep pressure off the external sector in the near term in spite of the deteriorating trade balance. But for how long? With investors already flagging uncertainties like the potential spillover of the Afghan crisis after the Taliban’s takeover, suspension of the IMF programme over differences regarding Islamabad’s growth strategy, exchange rate volatility, the drying up of FDI etc, external sector stability remains fragile. Growth in remittance flows also looks uncertain. A small shock may trip the nascent economic recovery and the frail balance-of-payments position unless the government starts pushing exports and discourages the consumption of non-essential import-based luxuries.

Published in Dawn, September 4th, 2021

Opinion

Editorial

Out of control
Updated 19 Feb, 2025

Out of control

AS bodies continue to fall in Kurram despite a state-sanctioned ceasefire, one wonders how long local militants’...
Hollow words
19 Feb, 2025

Hollow words

IT is not uncommon for politicians to resort to the use of hyperbole in order to boost their public standing. ...
Migration matters
19 Feb, 2025

Migration matters

THE grass, it seems, did appear greener on the other side to millions of people as evidenced by the latest UN ...
Cholistan project
Updated 18 Feb, 2025

Cholistan project

GPI goals align with Pakistan's broader economic aims but the manner in which the initiative was launched raises questions.
Right to know
18 Feb, 2025

Right to know

IT is an unfortunate paradox that while on paper Pakistan has some of the most impressive right to information laws,...
Dam dispute
18 Feb, 2025

Dam dispute

THE situation in Chilas needs attention and a fair-minded approach so that it can be resolved amicably. Diamer ...