Deteriorating external balance

The monthly import bill has jumped to $ 5.6 billion in January, which is the highest in the foreign trade history of Pakistan. The trade deficit has widened to $ 21. 5 during the past seven months of the current fiscal year and may go up further in the next few months if appropriate measures for facilitating exports and reducing imports are not taken. The worrying factor is that imports tremendously surged despite the imposition of regulatory duty and non-tariff barriers on 350 plus import items, which the court overruled as bulk of these items included basic consumers’ goods.

It was widely believed by the businessmen that State Bank of Pakistan decision to allow local currency to depreciate by 5 percent against US dollar will pent up exports. But exports showed a decline of 0.3 percent in January, amounting to $ 1.97 billion. Compared with the December figure, trade gape has widened month-on-month basis to 24 percent amounting $703 million. It also comes at a time of declining foreign exchange reserves that have come under tremendous pressure due to external debt servicing and repayments. The official gross foreign currency reserves held by the State Bank of Pakistan slipped to 13.1 billion despite $ 5.5 billion in loans during the first six months of the current fiscal year. By excluding domestic commercial banks borrowing the net foreign currency reserve of the central bank are not more than $ 7 billion.

On cumulative basis, the trade gap between exports and imports during July-January was equal to 84 percent of governments target for the whole year worth $ 25.7 billion, destroying official projections of current account deficit and foreign currency reserves. Exports in July-January period increased by 11.11 percent to almost $ 13 billion but these are only equal to 56percent of the annual export target of $ 23.1 billion. In absolute terms exports receipts were up by $ 1.3 billion during the first seven months. The value of imports stood at $ 34.5 billion which was 18.9 percent or 4 5.5 billion higher than the import bill booked during the first seven months of the last fiscal year. This grim scenario of the foreign trade has greatly irked the business community.  Senior Vice President Nisar Mirza and other top office bearers of the Islamabad Chamber of Commerce and Industry (ICCI) in a function held for Governor Punjab Rafique Rajwana on Friday decried the trade policy of the government. They expressed grave concern over the falling exports, fast rising imports and continuous decline in foreign remittance sent by Pakistanis working abroad and stressed the government should pay urgent attention to these issues. The ICCI senior business executives emphasized that government should make policies to promote industrialization instead of making Pakistan a trading nation. They said that many industrialists from textile and other sectors are moving to China and other countries and urged the government should create conducive environment to curb the flight of capital and promote investment in the country. This was a direct reference to government’s disastrous fiscal policy implemented over the last 10 years which has wiped out the comparative advantage of Pakistani goods in the international market. The phraseology of converting the country into a trading nation reflects the reservations of the Pakistani entrepreneurs about the mystery surrounding the Special Economic Zones (SEZS) established under the CPEC framework. They industrialist feel that relocation of high-tech Chinese industries in these zones will certainly destroy the local industry. It was in 2016 that the industrialists of ‘Golden Industrial Triangle’ comprising the trade bodies of Gugrat, Gugranwal and Sialkot gave an SOS call to the then industrialist Prime Minister Nawaz Sharif to make public all the details of SEZS and their backwash effect on the local industry. But their reservations were not addressed and the entrepreneurs are not satisfied with the hollow rhetoric of Planning Minister Ahsan Iqbal about the investment opportunities for local investors in these economic zones.

Pakistan spends $ 11 billion on the import of crude oil and petroleum products and $ 2.5 billion on importing palm oil for the ghee industry. If strenuous efforts had been made for increasing production from the existing crude oil wells and new discoveries of oil reserves the import bill of this item could have been substantially reduced. Dependence on the import of palm oil could have been reduced by increasing production of oil seeds like Sunflower, Brasica and Jajoba and establishing refineries for oil extraction. India manufactures raw material for pharmaceuticals but our governments did not pay attention to it. Politically motivated destruction of Pakistan steel mill and deliberately ignoring the exploitation of high quality pig iron reserves in Naokundi has increased the quantum and value of imports of iron and steel. Imports substitution can bring down the import bill and help reduce the trade deficit.