News about Pakistan Trade Deficit Shrinks 42% In Q1

Pakistan's trade deficit shrinks 42% in Q1

Pakistan's trade deficit contracted by 42% to $5.3 billion in the first quarter of the fiscal year, largely due to a significant drop in imports, even as exporters failed to capitalize fully on the rupee's devaluation over the past year.

The reduction in the trade deficit by $3.9 billion in just three months has eased pressure on foreign exchange reserves, which have yet to start building up despite the International Monetary Fund (IMF) deal.

The Pakistan Bureau of Statistics (PBS) reported that the gap between imports and exports shrank by $3.9 billion, or 42.3%, in the July-September period of the current fiscal year.

During this period, Pakistan imported $12.2 billion worth of goods, a decrease of $4.1 billion, or over one-fourth, compared to the same period last year. There had been expectations of increased imports after the government lifted regulatory duties and withdrew administrative controls.

The imports during the first three months were only one-fifth of the annual projection of $58.7 billion.

Effectively, each dollar saved through reduced imports eases pressure on the reserves, which remain at a critical level of only 1.5 months of import cover. To access the World Bank's commercial financing, the country needs a minimum of two and a half months' equal import cover. However, a lack of sufficient raw materials is affecting industrial output, as Pakistan heavily relies on imported raw materials for manufacturing.

Exporters fail to capitalize on rupee devaluation.

Pakistan's exporters failed to fully capitalize on the rupee's devaluation over the past year, with exports contracting by 3.8% during the July-September period, totalling just $6.9 billion, a $271 million reduction in exports in three months. The quarterly exports were equivalent to 23% of the annual target of $30 billion.

Over the past year, the rupee depreciated by almost 60% against the US dollar, theoretically providing a competitive advantage to exporters. However, some of these benefits were offset by high business costs, inconsistent economic policies, and the failure of exporters to innovate and move up the value addition ladder.

Low exports prevent govt from narrowing external financing gap

Low exports have prevented the government from narrowing its external financing gap, estimated at over $26 billion for this fiscal year. The government faces difficulties in issuing Eurobonds and raising debt from foreign commercial loans.

In September alone, exports amounted to less than $2.5 billion, an increase of only $28 million, or nearly 1.1%, compared to the same month last year. Imports dropped by 25.3% to less than $4 billion year-on-year. The trade deficit in September narrowed by 48% to just $1.5 billion, a reduction of $1.4 billion compared to the same month last year. Similarly, the month-on-month trade gap shrank by 31% as exports increased by 4.1%, and imports fell by 12.7%, resulting in a month-on-month trade deficit of $1.5 billion.