The current year started with a rising import bill which poses a serious threat putting pressure on the external side. The month of November of the current fiscal year (FY22) saw a steep rise of 162.4 per cent in trade deficit which was driven largely by more than triple increase in imports compared to exports from the country.
The reversing trend in trade deficit was witnessed for the fifth consecutive month as merchandise trade deficit reached $5.107 billion in November against $1.946bn over the corresponding month last year. This is, unfortunately, the highest trade deficit recorded in a single month in terms of value.
One of the major initiatives of the government to encourage imports of raw materials also pushed up the import bill. Oil prices have also increased substantially, which pushed up the import bill because of high demand for energy in the domestic market. A surge was noted in imports of vehicles, machinery as well as vaccines, pushing the import bill.
In comparison, the nation’s exports have grown by just 27pc to $12.365bn in July-November 2021. Even though the country has achieved its highest ever export revenues — the last time Pakistan fetched more than $25bn in export dollars was in 2014 — the performance is not that encouraging when considered in terms of GDP or the size of the economy.
The mounting trade deficit can be a major challenge for the county’s feeble external sector. The expanding gap in what we purchase from the world and what we sell to them has already eroded the current account surplus posted in the first five months of the last fiscal year.
The trend is likely to persist in the present financial year as the government targets GDP growth of 4.8pc or more. Imports are anticipated to increase even faster during this year while exports are unlikely to keep pace with them. That is likely to put pressure on the State Bank’s meagre foreign exchange reserves.
Last year, the Covid-19 pandemic had provided a cushion to the external account as we saw unprecedented growth in remittances sent home by Pakistanis working abroad because of restrictions on international travel, which helped the central bank finance surging imports and reduced the pressures on the country’s balance-of-payments position.
With the world getting vaccinated and slowly returning to normal, the remittances are unlikely to continue for too long, thus depriving the government of a major source of financing imports. The government has to take serious measures to tackle the swelling trade deficit.
