KARACHI, June 14: Trade deficit in eleven months of this fiscal year has risen to $5.51 billion from $2.67 billion in the same period of the last fiscal year.
This more than 106 per cent increase in the trade deficit is going to have serious implications for Pakistan’s balance of payments particularly on its current account and on the health of the rupee.
(According to data released by the Federal Bureau of Statistics, imports totalled $18.391 billion and exports $12.879 billion during this period).
The rupee has already lost 2.5 per cent value against the US dollar in the last eleven months falling to $59.60 at end-May 2005 from $58.13 at end-June 2004. The rupee would have lost far more value against the US unit had the State Bank not sold $2-2.5 billion to banks to finance costly oil imports between November 2004 and May 2005. The rupee had lost around 5.5 per cent of its value against the dollar during July-October 2004 before the central bank decided to intervene in the market and stabilize the local currency.
Its efforts bore fruits and the rupee regained part of its lost strength. But as the trade deficit continues to rise and the foreign exchange reserves of the central bank have also come down, the rupee looks set to shed some value before the close of the fiscal year at the end of June.
The trade deficit of $5.51 billion in eleven months to May is bound to expand further the current account and balance of payments deficit. In ten months of this fiscal year, Pakistan saw $1.156 billion current account deficit against a surplus of $2 billion in a year-ago period. It also booked an overall balance of payments deficit of $103 million during July-April 2004-05 against a surplus of $865 million in the same period of the last fiscal year. It was primarily a quadrupling of the trade deficit that turned the current and BOP surpluses into deficits during the said period.
During July-April 2004-05, the trade deficit (based on fob value of imports and exports) rose more than four times to $3.818 billion from $811 million in a year-ago period. As the trade deficit widened further in May, the current account and balance of payments data for July-May 2004-05 would show further deterioration.
The current account deficit looks set to reach $2 billion during this fiscal year against a surplus of $1.8 billion in the last fiscal.
REMITTANCES: The trade deficit has been on the rise so steadily since the start of this fiscal year that remittances from overseas Pakistanis that once used to offset the trade deficit retreated from this role.
Data on remittances for July-May 2004-05 would be out in a day or two. But as total remittances during this fiscal year are likely to reach $4 billion only, against an estimated trade deficit of not less than $6 billion, the remittances would cover only two third of the deficit.
It is against this backdrop that Pakistan is trying to lure more of foreign investment and is also trying to raise more debt from the international markets.
Its efforts to privatize state-run enterprises also are aimed not only at making them more efficient but to get extra foreign exchange to fill in the holes in the balance of payments.
Foreign exchange received through privatization of state-run entities forms part of foreign direct investment. In ten months to April 2005, Pakistan attracted $891.5 billion FDI that also included a part of the privatization proceeds of Habib Bank Ltd. The government hopes that total inflow of FDI would reach near $1 billion at the end of the fiscal year.