Pakistan’s import and export activities geared up to multi-year high in the fiscal year ended June 30 in the wake of government policies to ramp up economic activities to get out of the Covid-19 pandemic stress. However, the growth strategy has weakened the country’s capacity to make international payments for imports and foreign debt repayments.
The trade deficit surged by a massive $30 billion in FY21 and mounted pressure on rupee against the US dollar, as it dropped to a nine-month low at $161.48 to the greenback on Tuesday, the last working day ahead of Eidul Azha holidays.
“While rampant economic activity supported by SBP (State Bank of Pakistan)/government facilities keeps indicators upbeat, external position is under pressure,” Arif Habib Limited, a securities-backed research house said on its official Twitter handle.
The imports and exports both surged. However, imports soared sharply compared to a rise in export earnings. Accordingly, the trade deficit widened and pulled the balance of current account surplus in the first 11 months (Jul-May) into a deficit for full year FY21. The deficit was sharp and surprising in terms of dollar value against expectation of a nominal surplus in the year.
The rising international petroleum oil price, soaring cooking oil price and surge in food imports like wheat and sugar to control inflation in the country, increase in demand for medicines and Covid vaccine and rise in import of machines in the wake of government strategy to support expansion in industrialisation; all contributed towards increasing imports to a three-year in FY21.
Total imports increased by 17.6% to $61.6 billion (including import of services) in FY21 compared to $54.4 billion in FY20.
The export earnings surged to an eight-year high at $31.6 billion on the back of record high export of technology and all-time high export of textile goods. However, the surge in export earnings remains significantly low compared to the one recorded in imports, registering a huge trade deficit of $30 billion in fiscal year 2021 which weakened the country’s balance of payment.
Total exports increased by 12.8% $31.6 billion during FY21 compared to $27.9 billion in FY20.
Technology exports jumped 47% to $2.1 billion in FY21 compared to $1.4 billion in FY20, contributing 36% to the overall services export in the year under review, according to AHL.
Commenting on a significant surge in technology exports, Minister for Information Technology and Telecommunication Syed Aminul Haque said in a press statement that there was no doubt that the IT sector had a key role in strengthening the national economy and creating more job opportunities in the country. “The target of $5 billion IT sector exports would be achieved by 2023,” he said according to APP.
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The State Bank of Pakistan (SBP) said in its third quarterly (Jan-Mar FY21) report on the state of Pakistan’s economy that the trade deficit rose on the back of a sharp increase in non-energy imports. Food, transport, textile and machinery groups largely contributed to the increased imports. Energy imports, on the other hand, remained subdued, due to higher base effect.
“Meanwhile, exports also rose, but less sharply as compared to the increase in imports,” the central bank said. “Value-added textiles contributed the most to the expansion in exports. Among non-textile exports, the increase in rise exports remained moderate, as higher non-basmati rice exports partly arrested the decline in basmati rice exports.”
The SBP and government’s policies to support revival of economic activities in the wake of the pandemic have facilitated growth in the leading export sectors. They included, among others; sharp decline in policy rate, which lowered the cost of financing; subsidies on gas and power supply to industries; faster sales tax refunds; enhancement in the limits of refinancing under the Export Finance Scheme (EFS) and the Long-Term Finance Facility (LTTF).
“Pakistan’s imports rose in three consecutive quarters for the first time in the last 10 quarters, indicating that the declining trend in the imports that had appeared since Q1-FY18 has bottomed out,” the central bank added in the 3QFY21 report issues last week.
As the economic recovery gained traction, the imports increased…,” SBP said.
The Covid shock warranted the introduction of accommodative policies to stimulate economic activities. Reviving economic activities, however, led to a broad-based increase in non-energy imports…,” it said.
Besides, the lower than targeted wheat output last year and the government’s efforts to stabilise wheat and wheat flour prices, contributed to significant wheat imports. “This, coupled with rising international palm oil prices, pushed up food imports…”
After food, transport was the second largest contributor to the increase in overall imports. Specifically, car imports witnessed a rapid growth.
Published in The Express Tribune, July 21st, 2021.
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