The downfall of trade deficit in the one year of PTI

  • In order to reduce the trade deficit, the government has taken corrective measures such as the imposition of regulatory duties on luxury items and the automobiles.
  • The trade deficit shrank by 29% in the first month of this fiscal year and it shows that the government’s battle against bloated trade deficit is bearing fruits.
  • In July, the trade deficit decreased to $2.27 billion from $3.19billion over the corresponding month of last year.
  • The annual trade gap is projected to be reduced to $27.476 billion by June 2020.
downfall of trade deficit in PTI Govt
downfall of trade deficit in PTI Govt

The government has projected to reduce the annual trade gap to $27.476 billion by June 2020 and during the first month of the current fiscal year, the trade deficit shrank by 29%.

In 2018-19, the trade deficit fell to $31.82billion from $37.58billion over the previous year and registered a decline of 15.33%.

The downfall during July-March:

The decline in deficit in the July-March period is estimated to be in the range of $5bn-$6bn at the end of the current fiscal year.

This contraction is due to attributable to a steep fall in overall import bill even though export proceeds posted a mixed trend during the period under review.

On a monthly basis, the trade deficit fell by 37.74% to $1.93bn in March from $3.1billion over the corresponding month last year.

Pakistan’s exports fell by 4.54% in March and made the second consecutive month in which export proceeds have posted a decline.

Earlier, the government had claimed that the impact of currency devaluation will be visible in the export trajectory, anticipating a pickup in foreign sales and a steep decline in imports during the months ahead.

Imports Have Begun their Downward Journey:

Due to a number of policy interventions by the government, the imports have begun their downward journey.

The measures that helped in compression of imports are:

  • Improved energy supply
  • Import substitution drive
  • Economic stabilization
  • Currency devaluation

Value of Imported Goods:

In July, the value of imported goods came in at $4.15billion, down 14.07% from $4.89billion over the corresponding month last year. This is mainly because of the imposition of regulatory duties on luxury items and automobiles.

The rise in the import of raw materials and machinery is expected to accelerate industrial growth in the country.

Government is expecting that duty waiver on raw materials and machinery will boost economic activities in the current fiscal year.

The government has planned to envisage higher growth in the exports sector. The Govt has projected the exports at $26.187billion for 2019-20, up from $24.656billion estimated for fiscal year 19.

For this, the government has reduced the cost of raw materials and semi-finished products used in exportable products by exempting them from all customs duties in its last budget.

Trade Deficit Continuously Shrinking Since PTI Took Over:

The interventions to effectively control the fast-widening trade deficit have started delivering positive results.

In the month of January 2019 alone, the trade deficit plunged by $1.14 billion and imports declined by 19% while exports rose by 4%. The imports have started declining due to a number of policy interventions by the government.

These policy interventions include:

  • Import contraction measures
  • Regulatory duties on non-essential items
  • Improved energy supply
  • Import substitution
  • Economic stabilization
  • Currency devaluation

As a result of regulatory duties, the imports of non-essential consumer items have declined. After the government imposed a restriction on the import of furnace oil, imports fell from 3 million MT to 0.4 million MT.

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The exports of articles of apparel have increased by $306 million. Cement exports have shown a 50% increase in July-January. Agricultural exports also increased by $248 million.

During the first two months of the current fiscal year, Pakistan’s trade deficit shrank by 13.1% to nearly $26.17 billion from $30.114billion in the corresponding period last year.

The decline in deficit decreasing by $3.944billion during July-April is estimated to be around $5-6billion by the end of fiscal year 19. This indicates that the government’s corrective measures against trade deficit are bearing fruits.

 

Stats for the current account deficit of July

 

 

The Main Reason behind the Rise of Trade Deficit in PML-N Govt:

The trade deficit of Pakistan hit a record level of 30 billion US dollars in the first 11 months of the fiscal year 2016-17. In the same period, the exports had declined by 3% to 18.5 billion US dollars while imports have gone up by 21% to 48.5 billion US dollars.

This never happened before in Pakistan’s history that imports were over two-and-a-half times of exports. The reasons why Pakistan’s exports had declined by 20% since 2013-14 include a number of structural factors and wrong policies.

There had been little emphasis on broadening the export base that remained over-reliant on textiles as the principal export.

The previous government had neglected the export sector and also it was lack of access to infrastructure, especially electricity and gas, and restricted availability of credit from commercial banks.

The previous government didn’t recognize that export growth is essential not only for the sustainability of external debt but also to raise the economy’s growth rate.

The previous government didn’t actively exploit the openings created by the GSP+ status granted by the European Union and the opportunities offered by China-Pakistan Free Trade Agreement.

Regulatory duties on around 1,194 tariff lines have been imposed. The decline in deficit shows that the government’s interventions have started bearing fruits.

The measures taken in the two supplementary Finance Acts have firmly taken hold. They are now effectively curtailing imports as per the policy regime of the government.

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