Trade deficit widens to $32bn
ISLAMABAD: The country’s trade deficit widened 82 per cent year-on-year to $31.96 billion, largely driven by more than a double increase in imports compared to exports, showed data released by the Pakistan Bureau of Statistics on Wednesday.
An upward trend in the trade deficit was witnessed for the eighth consecutive month owing to an unprecedented increase in imports while exports stagnated at around $2.5bn to $2.8bn a month, mostly of semi-finished products and raw material.
Official data showed that the merchandise trade deficit grew 22pc year-on-year to $3.09bn in February. The highest-ever increase in imports also helped the Federal Board of Revenue collect maximum revenue at the import stage, including sales tax, withholding tax and customs duty.
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However, the government’s battle against the bloated trade deficit is reversing and may cause pressure on the external side because of record imports.
The good sign for the government is that the overall import value is steadily in decline, falling to $5.9bn in February from its highest monthly level of $7.92bn in November. Since then, the overall import value has been declining steadily.
The trade deficit reached an all-time high of $37.7bn in FY18. However, the government’s measures led to a drop in it to $31.8bn in FY19 and $23.183bn in FY20.
The trend then reversed and the trade gap jumped to $30.8bn in FY21 and is expected to reach an all-time high during the ongoing fiscal year.
During the first eight months (July-February) of this fiscal year, the import bill rose 55pc to $52.5bn from $33.85bn a year ago.
In February alone, the import bill edged up to $5.9bn from $4.6bn over the same month last year, reflecting an increase of 28.3pc. On a month-on-month basis, the imports fell by 2.28pc in February.
One of the major initiatives of the government to encourage imports of raw materials also pushed up the import bill. Rising global oil prices and its high demand at home also pushed up the bill.
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A surge was also noted in the import of vehicles, machinery and vaccines. The government is also importing wheat and sugar and costly palm oil.
In FY21, the import bill surged 25.8pc to $56.09bn from $44.57bn a year ago.
In July-February, exports posted a year-on-year growth of 25.9pc to reach $20.54bn. In February, exports grew 36pc to $2.8bn from $2.06bn in the same month last year. On a month-on-month basis, exports increased by 7.42pc in February.
Export proceeds went up by 18pc to $25.294bn in FY21 from $21.394bn over the last year.
According to the Monthly Economic Update and Outlook February 2022, exports and imports are usually supported by strong positive seasonal effects in December and these seasonal effects largely disappear in January.
Accordingly, even after adjusting seasonal factors, the exports declined marginally more than expectations in January, which resulted in a deficit in the trade balance.
Remittance inflows also declined in January, largely due to a negative trend that is typically observed in January. In sum, a decline in net exports and remittances caused the current account balance to worsen in January.
In the current baseline scenario, the decline in export proceeds in January is considered to be an idiosyncratic event that may not be repeated in the following months. The trade balance and remittance inflows are expected to recover in the coming months. As a result, an improvement in the current account balance is foreseen.