The trade deficit of $5.581 billion for the July-December 2005 period is a staggering figure for Pakistan whose last record deficit was $3.52 billion in 1997-98. And that was for the whole year, while the $5.581 billion is for only six months’ period with no promise of speedy correction.

The six-monthly relief is far in excess of the $4 billion deficit budgeted for the whole year with exports targeted at $17 billion and imports at $21 billion.

Such a situation would have been critical for Pakistan but for the foreign exchange reserve of $11.5 billion, the rising home remittances which will be far in access of $4 billion and the inflow of foreign investment in response to our rapid privatization programme.

The soaring price of oil which is setting records for its peaks, the large import of automobiles and the increased import of machinery for industrialization and the varied imports resulting from the flourishing consumer banking are responsible for the large trade deficit. The exports did rise during the period by 24 per cent over the same period last year, but the imports shot up by 15.52 per cent resulting in the record deficit. Pakistan is among many countries facing large trade deficits primarily due to the soaring oil prices.

India has a deficit of $37.3 billion, Thailand, $8 billion and Egypt $10.4 billion. While the oil exporting Saudi Arabia has a surplus of $84.6 billion and oil-rich Russia $119.6 billion and oil-exporting Venezuela $28.2 billion. The striking exception among the non-oil countries is China with a trade surplus of $102 billion.

While the government does not intend to reduce imports to save foreign exchange, it is exploring the means to increase the export earnings. Among the many means sought is signing of free trade treaties with big and small countries including the US and Silence.

Last year, despite the high price of oil, not so high as this year, the trade deficit was $2.396 billion which is small compared to the current year’s deficit. But the problem with Pakistan is that its exportable surplus is small because of its modest production and its consumption by 160 million people.

While the cotton production may be 2-3 million bales less than last year’s record output, the sugar cane output is expected to be far below the needs particularly when there is so much holding and market manipulation. In spite of the imports including from India and the release of the stocks headed by the Trading Corporation of Pakistan, the wholesale prices have touched Rs33 per kilogram and Rs35 in the retail market. The rice output this year is expected to be far more than last year and the exports may earn $1 billion. Already the rice exports have risen over 20 per cent over last year. Already 850,000 tonnes of rice have been exported.

A report from Shanghai says, Pakistan can export far more to China and capture the $16 billion market of the largest city in China. Such possibilities exist in other cities of China as well and the Chinese government does not want to promote larger trade between the two countries. But the big question is do we have such a large exportable surplus while the export target for the current year is only $17 billion and we are importing more of the essential goods ranging from sugar to vegetables and meat from India?

We are also striving hard for larger import access to the US with which we are seeking a free trade agreement. Following the meeting between prime minister Shaukat Aziz and president Bush of America in Washington, the repeated appeal of Pakistan‘s top leaders to the US leadership to provide larger access to the US market for Pakistani goods, president Bush has instructed his powerful trade representative to expedite the negotiations for a free trade agreement between the two countries.

A free trade agreement is not a one- way street. American goods will have similar access to Pakistani markets. When some time, the free trade agreement comes through Pakistan will find that it has a small export surplus to send to America and China and other countries with which we are seeking such agreements.

So, the solution lies in increasing Pakistan’s exportable surplus beginning with a larger agricultural output. The officials of Punjab and of the Indian Punjab have agreed to exchange their data on agricultural output and help each other and that is a happy development. And we have to focus on exporting more and more of the value- added so that we can get more money for exporting less quantity.

It is encouraging to see more attention being paid to agriculture than before, the banks too have increased their credit to the farmers in addition to the Zarii-Tariqiati Bank. Agro-industries will also have to be set up in the rural areas and promoted assiduously through the small and medium scale industrial programme. It is now being said by businessmen on both sides that the scope for India-Pakistan trade is really $10 billion and not $3-4 billion.

To achieve that, both the governments have to check the flourishing smuggling assiduously and implement the South Asia Free Trade Agreement earnestly. While that may be a possibility as far as Pakistan is concerned, they have to settle the political problems first, primarily Kashmir instead of assuming that free trade, people- to- people exchanges and cultural missions can eventually solve the political problems.

What is good for the textile industry is good for Pakistan says the advisor to the prime minister Dr Salman Shah. He wants rigorous efforts to be made to restructure and re-invigorate the textile industry. He has also advised textile industrialists to hire an internationally reputed consultant to help them enlarge their exports.

He regretted that not much had been done by way of the value- added in the spinning and weaving sectors and some of the prominent textile industrialists were missing from such areas. He also wanted the textile industry to develop proper brands, which can become popular abroad. He urged that groups of industrialists to join hands to acquire brands in this area and promote them.

The trade deficit can come down if more oil and gas can be found in Pakistan. But during the five months ending November, the increase in oil output was 0.3 per cent, but the output of gas increased by five per cent. Clearly far more has to be done in this area.

A Canadian oil and gas company— Kathi Oil & Gas—is interested in establishing a petro-chemical plant to produce the by-products of coal in Sindh. It could be a welcome development if the Canadian firm moves ahead in this area, while there has been small progress in the coal development sector despite the interest of China in the project. Finally, the need of the hour is capacity creation for exports and more and more of the value-added in the export sector particularly in the textile sector.