World Economy

Pakistan Trade Deficit Widens by 56%

Pakistan Trade Deficit Widens by 56%Pakistan Trade Deficit Widens by 56%

Merchandise trade deficit soared by almost 56% in July, the Pakistan Bureau of Statistics said on Thursday. It rose to $3.2 billion as the new fiscal year opened on the back of higher growth in imports and a lower export bill.

The rising trade deficit poses one of the most serious challenges for the government in the last year of its current term. The last fiscal year saw the trade deficit rise to an all-time high of $32.58 billion, representing year-on-year growth of 37%, APP reported.

Imports recorded a growth of 37% to $4.84 billion in July from $3.54 billion a year ago. The import bill is rising due to an increase in the arrival of capital goods, petroleum products and food products. The overall import bill rose 18.7% to $53 billion for 2016-17.

Exports in July increased 10.6% to $1.63 billion. In absolute terms, they were only $156 million higher than the same month of previous year. Imports were valued at $4.8 billon, which was 36.7% or $1.3 billion higher than imports made in July last year.

In the new fiscal year 2017-18, the federal government has targeted to increase the exports to $23.1 billion, which requires 13.2% growth over previous year’s exports of $20.5 billion.

The government is aiming to curtail the import bill to $48.8 billion, which seems impossible, given the trend in the first month of FY18.

This will have direct implications for the current account deficit that the government plans to restrict to $8.9 billion in FY18. Independent economists have estimated the current account deficit in the range of $13 billion to $14 billion.

A higher-than-projected current account deficit will have direct bearing on the country’s foreign currency reserves, which are again on the decline. The State Bank’s foreign currency reserves plunged to $14.398 billion by August 4, 2017, down $1.8 billion since June 30.

Pakistan will require about $20 billion in the current fiscal year to meet its external financing requirements including debt repayments.

However, fresh trade statistics have deepened concerns about long-term sustainability of the external sector, which the government is managing by borrowing from foreign countries and commercial banks.

Cheap imports have started hurting the import-substitution industries, according to former finance minister Hafiz Pasha. However, the ministry of finance believes that the growing trade and external deficit is a temporary phenomenon due to higher imports under the China-Pakistan Economic Corridor.

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