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Lately, Pakistan’s economy has been depicting a downward trend, and this is well exhibited by the fact that in the first half of the fiscal year 2011-12, the country’s trade deficit has increased by 38.48 percent as it has been recorded at $11.48 billion as against $8.29 billion of the same period last fiscal year, according to Pakistan Bureau of Statistics (PBS).
Trade deficit due to higher import bill comprising of petroleum products, power generating machinery, palm oil, electrical machinery & apparatus etc is expected to reach at $22 billion till the end of second half of the ongoing fiscal year.
Increasing trend of country’s imports continued and imports surged by 18.90 per cent in July-December 2011-12 and are recorded at $22.72 billion as against $19.10 billion of the same period last fiscal year. However on the other hand, exports showed a growth of only 3.94 per cent and are recorded at $11.24 billion at the end of second quarter of FY 2011-12 as against $10.82 billion of the same period last year. Therefore, the trade deficit is recorded at $ 11.48 billion during the first six months of the ongoing fiscal year.
Statistics shows that in second quarter trade deficit recorded at $6.295 billion, exports stood at $5.302 billion and imports at $11.597 billion. In the months of October, November and December 2011 the exports are recorded at $1.896 billion, $1.552 billion and $1.854 billion respectively, while imports in the same months are recorded at $3.607 billion, $3.729 billion and $4.261 billion respectively. Monthly trade deficit in the quarter is $1.711 billion, $2.177 billion and $2.407 billion respectively.
Calculating the same trade performance in percentages, it tells us that imports changed by -0.41%, 3.38% and 14.27% respectively, whereas exports changed by 3.27, -18.14 and 19.46 percent respectively. Therefore, compared to first quarter the overall trade deficit in the second quarter in percentages has increased by 23.11 percent.
Having a look on Pakistan’s trade performance in first quarter of the current fiscal year, statistics tells that the trade deficit was $5.114 billion, imports stood at $11.117 billion and exports stood at $6.003 billion. Going in details, in the months of July, August and September 2011 the imports were recorded at $3.689 billion, $3.806 billion and $3.622 billion respectively, while exports in the same months were recorded at $2.203 billion, $1.964 billion and $1.836 billion respectively.
Monthly trade deficit in the quarter was recorded as $1.486 billion, $1.842 billion and $1.786 billion respectively. Calculating the same in percentage it gives results that imports changed by -4.50, 3.17 and -4.83 percent respectively whereas exports changed by -9.23, -10.85 and -6.52 percent respectively. Therefore, compared to final quarter of last fiscal year 2010-11, the overall trade deficit in 1st quarter of FY 2011-12 in percentages had increased by 19.35%.
Going back in the last decade to have a view on the performance of Pakistan trade, statistics shows that trade deficit in 2001-02 was $294 million, $444 million in 2002-03, $1.208 billion in 2003-04, $4.352 billion in 2004-05, $8.259 billion in 2005-06, $9.495 billion in 2006-07, $14.970 billion in 2007-08, $12.626 billion in 2008-09, $11.536 billion in 2009-10,  and $15.587 billion in 2010-11.
For the ongoing fiscal year till 30 June 2012, analysts and economists have projected trade deficit at a record of $ 22 billion, however, the government has projected trade deficit of $17.292 billion at the end of current fiscal year. Economists’ projection is based on rising demand for imported industrial inputs, petroleum products, capital goods and machinery, and food items.
Imports are simultaneously rising as import bill for food, commodities and oil is going up, on the other hand exports slowdown is heavily straining the balance of payments. The main reason behind the increasing trade deficit is the higher import bill, if the current trend of increasing import bill continues then imports would further accelerate in the upcoming months due to sharp rupee depreciation against the dollar that would push the trade deficit on the higher side.
The main factors which have caused to rise in import bill include increase in international commodity prices, especially in petroleum products, that increased by 51 percent after declining by 20.6 percent last year. The quantity wise import of petroleum products have increased by 6.1 percent.
Talking about exports, the textile industry which is the backbone of Pakistan exports and it contributes to more than 60 percent of total exports of the country, it had contributed $14 billion of total exports of $25 billion in last fiscal year but it has lost 30 percent of the production in the first half of ongoing fiscal year due to prevailing energy shortages.  The demand of Pakistan’s products particularly textile, leather and cotton have been losing their demand in foreign markets specifically in the EU and US. Furthermore, the prices of finished, semi-prepared and raw products have seen decline in the values particularly textile made-ups and cotton, which caused decline in Pakistani exports in the exporting countries.
According to Ijaz Khokhar, Chief Coordinator, Pakistan Readymade Garments Manufacturing and Exporters Association (PRGMEA), “Pakistan’s overall textile exports were likely to hover between $10 billion and $11 billion this fiscal year, which stood at $14 billion last fiscal with a big fall of $3-$4 billion” further he said, “Gas and electricity shortages were the key factors behind delay in export shipments to EU and US ahead of Christmas and New Year celebrations, so the government should first help the local industry to fulfill the international commitments as it has already made instead of signing FTAs or PTAs which will never benefit the manufacturing sector unless power and gas are provided”.
The current government has set an imports target at $42.910 billion and an exports target of $25.618 billion for FY 2011-12 (trade deficit targeted as $17.292 billion), but the Chairman Trade Development Authority of Pakistan (TDAP), Tariq Iqbal Puri, has said “exports will remain between $23 and 24 billion, compared with $25 billion in FY 2010-11, because of the worst financial crisis in EU and economic slowdown in United States. Low productivity and ongoing domestic energy crisis are also responsible for decline in exports.”
Therefore, in order to reduce the trade deficit Pakistan must focus on encouraging industrial sector, so that exports would be increased in coming years and that can be possible if industrial sector is provided with required energy, on the other hand Pakistan must have to reduce its demand for oil imports and it has to generate electricity from alternative sources instead of oil.
If the policy makers and policy implementing authorities do not take serious measures to overcome the crises Pakistan would become a defaulter state.
Data source: Pakistan Bureau of Statistics and Economic Surveys of Pakistan 2009-10 & 2010-11.
The writer is a consultant and can be reached at

This article was originally published at: The News

The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.