KARACHI, July 22: The Federal Commerce Minister Humayun Akhtar Khan on Thursday expressed the hope to maintain a $3 billion trade gap in the current fiscal year provided there is no "major disruption in the trading environment , the GDP grows at over 6.5 per cent and exchange rate remains at internationally competitive levels."

In his Trade Policy for 2004-05 speech, the commerce minister projects total exports during the current fiscal year at $13.7 billion and imports at $16.7 billion.

He also made a reference to $3.19 billion trade gap suffered in the outgoing fiscal 03-04 when imports outgrew the projected $12.8 billion by almost 21 per cent to $15.4 billion. This phenomenal rise in import bill outmatched the 10 per cent growth in exports and ended up with a colossal imbalance of more than $3 billion, which was more than three times of the $1 billion dollar trade deficit suffered a year earlier in 02-03.

But the minister has taken over $3 billion trade deficit in 03-04 in stride maintaining the bulging import bill is a good augur for the national economy as it was because of increase in supply of machinery, raw material, metals and other items that should have augmented industrial production capacities.

That Pakistan's exchange rate is under immense pressure in the current fiscal year is more than evident in the State Bank's recent third quarterly report of 2003-04. The SBP expressed the identical views on rise of import bill but could not help in ringing an alarm bell.

The report says in guarded language "nonetheless, if the external account deficit worsens (mainly because of trade imbalance and shortfalls in inflow of foreign exchange from other sources) significantly, the SBP may have to reconsider its exchange rate stance accordingly. But then the SBP assures that any necessary adjustments would be gradual.

What is being overlooked is the fact that food import during 2003-04 cost us $1 billion. The $4 billion machinery and equipment import more than $1.2 billion worth of aircraft for PIA and motor vehicles. It is true that about $600 million worth of textile machinery has also been shipped which should further strengthen Pakistan's textile industry.

The government has already announced an import programme for one million ton of wheat which should cost anywhere up to $400 to $425 million.

There are apprehensions that the government would be forced to import half a million tons more wheat late in the year which means the total wheat import bill during 04-05 may go up to $600 million in the current fiscal year.

Viewed in this backdrop, the international trade scene for Pakistan in the current fiscal year looks unpredictable and one finds it difficult to share commerce minister's optimism. In fact the current fiscal year has begun with "major disruption" in the trade environment for Pakistan.

The prices of edible oil bill is reported to be crawling up and would demand more than $650 million to $700 million this fiscal year. With budgetary concessions for import of spices, dry fruits, tea and many other edible items the food import bill is bound to rise and may even exceed the initial estimate of $1.5 billion to $2 billion in the final counts.

Market reports suggest that prices of raw material and chemicals are rising in the international market. China, the main supplier of chemicals and industrial raw material is facing acute energy shortages which is reported to have brought down production of chemicals and industrial raw material.

A major cause of concern is the unpredictable situation in the Middle East. Any major or minor development in our neighbourhood can escalate crude oil prices. It is bound to have an all round effect on our economy. How would we respond to such a situation is anybody's guess. The oil price issue will pinch us more this year because of the termination of Saudi oil facility.

The end of textile export quota phase at the end of 2004 should be an opportunity for our textile exporters. But the textile industry is under tremendous stress at the beginning because of sharp fall in international cotton prices. There are reports that China is giving a mega bumper cotton crop of 29 to 30 million bales which could upset the international market.

The termination of textile export quota at the end of the year will bring down prices of textile products in the international market coupled with the fact that there is a fear that production cost may go up at home.

In short all is not well. But Pakistan has faced many such situations in the past and has been able to overcome such difficulties. The measures suggested to diversify export base and markets are too meagre to give any immediate results. For the current year and next few years we will have to depend on the goodwill of the US and the EU to absorb at least 50 per cent of our exports. This involves a political cost that we are paying at home.