Editorial: Trade deficit widens further



Pakistan’s trade deficit rose to $ 29.99 billion during July-May 2017 with the import bill rising to $ 48.53 billion and export revenue declining to $ 18.54 billion, according to the Pakistan Bureau of Statistics (PBS). This reflects a sustained poor performance second year in a row as the first eleven months of 2015-16 exports registered $ 19.1 billion while imports were $ 40 billion. Thus in dollar terms, exports declined by 3.13 percent in July-May 2016-17 in comparison to the year before and imports rose by 42 percent.

The PBS revealed a trade deficit in services for the first ten months of 2016-17 (instead of 11 months as in the case of total exports) was $ 2.3 billion with imports estimated at $ 7 billion while exports registered $ 4.7 billion. July-April 2015-16 total imports of services were estimated at $ 4.67 billion while imports were estimated at $ 6.9 billion or a marginally lower deficit of $ 2.2 billion.

What must be a source of serious concern is that the May 2017 data reflects a worsening trend when compared to April 2017 in lower exports and higher imports. PBS data indicates that while exports were estimated at $ 1.8 billion and imports at $ 4.99 billion in April 2017 the figure for May 2017 was $ 1.6 billion and $ 5.0 billion, respectively. Thus a rise in the trade deficit between April and May for the current year is extremely ominous especially as it shows that the export package announced by Prime Minister Nawaz Sharif in January this year amidst much fanfare has over time not only proved ineffective but it has actually been unable to stem the slide in exports.

One would hope that the Prime Minister does not take this data as indicative of the poor performance of the Ministry of Commerce in general and his Commerce Minister Khurram Dastgir in particular for blame lies squarely on the fall in the international commodity prices, consisting of our major exports, and the fiscal and monetary policies that are being implemented for the past four years.

True that Pakistani industry has been reluctant to focus on value-addition and by and large, has exported traditional items which are particularly susceptible to a good global crop year as well as the state of the economy of our major buyers. This approach is in marked contrast to China and India – countries that are forging ahead with higher value-addition an approach that accounts for their continuing rise in exports; at the same time stringent import policies together with appropriate fiscal and monetary incentives have fuelled local production with a commensurate decline in their import bill.

In Pakistan, unfortunately, cartelization is the norm – even in those products with a large enough number of buyers and sellers that economic theory dictates should not impact on price or influence government policy. Examples to name a few are sugar, cement, auto industry, textile associations and cigarettes. Competition Commission of Pakistan has investigated and imposed penalties on many cartels; however, they got stay orders from the court and little had changed since. However, to deal with such issues would require a change in the mindset of our industrial sector through carefully adjusting fiscal and monetary policies a long-term process.

The major responsibility for a decline in exports for the past two years, however, rests with the policy decisions to keep the rupee overvalued (which makes our exports uncompetitive internationally) and the failure to release refunds which generates liquidity concerns amongst exporters thereby compelling them to procure loans which simply add to their costs. If these two issues are dealt with the government can arrest if not reverse the decline in exports in the short-term.

One rider is in order: the PBS gets its export import data from the State Bank of Pakistan; however, the central bank has yet to upload the May 2017 data on its website which would have allowed analysts to pinpoint which commodities had witnessed a rise or decline in exports and imports between April and May this year.