ISLAMABAD, 15 January 2007 — Pakistan’s trade deficit is widening as imports grow fast while exports are moving up slowly.
Trade deficit widened to a record $6.459 billion during July-December 2006 — the first half of the current fiscal 2007, up from $5.603 billion in the same period of fiscal 2006, the latest data from State Bank of Pakistan (SBP) — the central bank — and the Federal Bureau of Statistics (FBS), said.
The actual exports in the first half of fiscal 2007 — July-December 31, 2006 were $8.43 billion, up from $8.073 billion. The imports to that date were a record $ 14.895 billion against $13.650 billion in the like period of last year.
The full year target for exports is $18.6 billion, according to the Ministry of Commerce Trade Policy for 2007. Imports are projected at $28 billion.
Commerce Minister Humayun Akhtar says “the slow growth in exports is due to a stronger export base of 2006. Exports grew 20 percent during the same period last year. In the second half — January-June of this fiscal year, the growth in exports will pick up momentum.”
Over the past seven years, Pakistan exports have doubled to $16.6 billion which is 13 percent of its GDP, but much less than those of other regional countries like China and India, although it has a $156 billion economy.
Exports of various groups put up a mixed performance even in 2006 and the first few months of 2007. Non-textile exports rose 33 percent in the first two months of 2007.
Primary commodities, mainly rise, were up 25 percent, in early 2006. Merchandise exports in 2006 were up to 4.0 percent. Textile exports were down 9.5 percent. Leather and its products declined 40 percent to $195 million. Raw cotton was down 30 percent.
Manpower exports were down to 145,000 workers from 175,000 in 2005. It means, all sectors will have to join in to produce more and export more.
Costly imported oil, besides larger import of machinery and industrial raw materials, are the key elements of the widening trade deficit.
As a result of the widening trade deficit, the current account (CA) balance is also under adverse pressure. The CA deficit, according to SBP data widened by 22 percent to $3.753 billion in the first five months of fiscal 2007. The growing trade deficit is worsening it further. CA during the same period of 2006 was $3.068 billion.
The overall balance of goods and services during the first five months of fiscal 2007 was $6.175 billion in the red.
The gap has been filled through increased foreign direct investment (FDI) inflows, and sale of state-owned enterprises (SOEs). Gulf investors have been quite active in buying these assets. Receipts from sale of SOEs have helped in reducing CA deficit by around 14 percent.
The increasing home remittances sent by Pakistanis working in the Gulf, Saudi Arabia, UK and North America have been a major source of help to fill the gap.
The government projects inflow of home remittances to rise to $5.5 to 6.0 billion during 2007. Home remittances already are up 20 percent, compared to the like period of 2006. FDI inflows were estimated at $3.0 billion in the same period. The projection for the whole year is $5.0 billion plus, up from $3.6 billion in fiscal 2006.
