Trade deficit hits highest level on record as imports soar

ISLAMABAD: Pakistan’s trade deficit ballooned to an all-time high of $48.66 billion in the outgoing fiscal year from $30.96bn a year ago, indicating an increase of 57 per cent on the back of higher-than-expected imports, provisional official data showed on Saturday.

The trade deficit reached such an alarming level despite a ban imposed on more than 800 items in May.

The coalition government’s battle against a bloated trade gap has failed to produce the desired result as it widened by 32.3pc to $4.84bn in June from $3.66bn a year ago. It was largely driven by an almost double increase in imports compared to exports.

The outgoing fiscal year’s trade deficit has crossed the $37bn figure of 2017-18, which was mostly led by imports related to the China-Pakistan Economic Corridor.

In the subsequent years, the trade gap dropped to $31.8bn in 2018-19 and then further to $23.2bn in 2019-20 before bouncing back to $30.8bn in 2020-21 and then a whopping $48.664bn in 2021-22.

The $48.66bn gap between imports & exports in FY22 is significantly higher than the $30.1bn a year ago

The outgoing year’s trade deficit is propelled by the highest-ever increase in oil prices and commodities in the international market.

The trade deficit has been on the rise owing to an unprecedented increase in imports due to a rise in global commodity prices, while exports stagnated at around $2.5bn to $2.8bn a month, mostly those of semi-finished products and raw materials.

The trade deficit came in at $4.04bn in May and $3.78bn in April, which indicates that no let-up was seen in monthly deficits when former prime minister Imran Khan was ousted in April through a vote of no confidence in parliament.

Import bill rises

The import bill increased 43.45pc to $80.51bn during 2021-22, up from $56.12bn a year ago.

In June alone, the import bill edged up to $7.74bn from $6.28bn over the same month last year, reflecting an increase of 23.26pc. Imports increased by 14.32pc month-on-month in June. In May the import bill was recorded at $6.77bn while it stood at $6.67bn in April.

The government imposed a ban on the import of nearly 800 luxury and non-essential goods on May 19.

According to the Pakistan Economic Survey 2021-22, the jump in imports is recorded in all the major groups. Multiple factors have contributed to the steep rise in imports during the period under review. Rising global commodity prices contributed significantly to the increasing import volume.

Disaggregated data on imports indicates that the energy group is the largest source of the increase in imports, contributing to a one-third of the year-on-year increase in imports during the period.

Similarly, price-led pressures were also noted across non-energy commodities imported by Pakistan, such as edible oil (palm and soya bean), sugar, tea, fertiliser and steel. At the same time, the domestic demand for imported raw materials — such as cotton, steel and capital goods — was also elevated in the wake of the policy-induced economic rebound.

Exports pick up

For the first time, not only the export target was achieved but it exceeded the psychological barrier of $30bn. Pakistan’s exports remained below this level for the last decade.

Pakistan’s exports increased 26.6pc to $31.845bn in the just-ended fiscal year, up from $25.160bn a year ago. Exports grew 6.48pc to $2.89bn in June, up from $2.72bn in the previous year.

Exports rose 18pc to $25.3bn in 2020-21, up from $21.4bn the previous year.

In the outgoing fiscal year, the government projected the annual export target for commodities at $31.2bn and services at $7.5bn.

According to an official report, around two-thirds of the increase came from the textile sector, especially from the high value-added segment.

Pakistan’s textile exporters capitalised on the available policy support — including the SBP’s concessionary refinance schemes for working capital and fixed investment, and the regionally competitive energy tariffs — and managed to ship higher volumes to key destinations like the United States, the United Kingdom and the European Union.

Higher cotton prices also helped to increase the export unit prices of both low- and high-value-added textile products. Apart from textiles, rice exports also rebounded during the 2021-22 fiscal year mainly due to the non-basmati variety.

Published in Dawn, July 3rd, 2022