Trade Deficit Falls Sharply by 38% in July-August

  • The country’s trade deficit shrank by nearly 38% in the first two months of the current fiscal year.
  • The contraction in trade deficit is due to attributable to a steep fall in overall import bill.
  • The incumbent government has taken a number of steps to decrease the imports and the trade deficit is continuously shrinking since PTI took over.
Trade Deficit Falls Sharply by 38% in July-August - Details
Trade Deficit Falls Sharply by 38% in July-August – Details

The trade deficit shrank by nearly 38% July-August 2019 and it is largely due to a decline in imports of non-essential luxury items.

The incumbent government has taken corrective measures in order to reduce the trade deficit. The trade deficit shrank by 29% in the first month of the current fiscal year. In July, the trade deficit decreased to $2.27 billion from $3.19billion.

This continuous decline in the trade deficit shows the government’s battle against bloated trade deficit is finally bearing fruit.

The government had earlier claimed that the impact of currency devaluation will be visible in the export trajectory and the imports have begun their downward journey due to policy interventions by the government.

The measures that helped in compressions of imports are:

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

Provisional Trade Figures:

The provisional trade figures also showed that the country’s trade deficit plunged to $3.973 billion during July-August from $6.37billion, reflecting a decline of 37.62%.

During the previous fiscal year, Pakistan’s trade deficit lessened to $31.82billion and showed a decline of 15.33%.

This decline is significantly steeper as the value of imported goods in August dipped by 26.9% to $3.64billion as compared to $4.98billion over the corresponding month last year.

Furthermore, the country’s merchandise exports grew by 8% to $3.686billion in July and August, from $3.41billion during the same period last year.

Also Check: Comparison Of Pakistan’s Economy In The Tenures Of PPP, PMLN, And PTI.

This is massively discouraging, as exports should have grown over the last few months owing to multiple currency depreciation, which has failed to pick up.

The growth in export was encouraging as it grew by 15.65% on a year-on-year basis. However, exports during August grew by a scant 1.12% to $1.792bn as against $1.772bn over the corresponding month last year.

Cumulative exports during the ongoing fiscal year are likely to reach $26.187bn, up from $24.656bn in fiscal year 19.

Already the government has reduced the cost of raw materials and semi-finished products used in exportable products by exempting them from all customs duties.

It is expected that the rise in the import of raw materials and machinery will accelerate industrial growth in the country.

It is also expected that duty waivers on raw materials and machinery will boost economic activities in the current fiscal year.

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

Trade Deficit Continuously Shrinking Since PTI Took Over:

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

In January 2019 alone, the trade deficit plunged by $1.14 billion and imports declined by 19% while exports rose by 4%.

The imports are decreasing mainly 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

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

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 trade deficit was recorded 30 billion US dollars in the first 11 months of the fiscal year 2016-17.  During the same period, the exports had declined by 3% to 18.5 billion US dollars and imports have gone up by 21% to 48.5 billion US dollars.

There are so many reasons why Pakistan’s exports had declined by 20% since 2013-14 and these reasons include several structural factors and wrong policies.

In the previous governments, the export sector was neglected and it lacked access to infrastructure, mainly electricity and gas, and restricted availability of credit from commercial banks.

The previous governments 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.

But now, the regulatory duties have been imposed and the decline in trade deficit shows that the government’s interventions have started bearing fruits.

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

 

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