Pakistan Reader# 200, 10 September 2021
The exports stood at USD 4.6 billion compared to imports at USD 12.1 billion, thereby placing the trade deficit at USD 7.5 billion for two monthsAnkit Singh
On 5 September, the Pakistan Bureau of Statistics (PBS) in its bi-monthly series published figures for the balance of payments for July and August. The projections indicated that the trade deficit has widened by 120 per cent in comparison to the same period of previous financial year. The exports stood at USD 4.6 billion compared to imports which stood at USD 12.1 billion taking the trade deficit to USD 7.5 billion for two months.
Trade deficit: A brief background
Pakistan as an economy is not a services-oriented economy; the manufacturing sector as well is not competitive vis a vis major multinational companies be it, mobile phones or cars, it is not yet a high-end economy in terms of technology and innovation. Therefore, the major export manufacturing sectors are textile, steel, pharmaceuticals, cement, auto-parts, chemicals, oils and gases, construction material and fast-moving consumer goods and hence the need for importing other crucial commodities have arisen over time in ever connecting global economy. The trade deficit historically has remained in the range of respectable limits up until 2003 and started nosediving from 2004 when it breached the safety threshold of USD 5 billion. The data from International Trade Statistics Yearbook over the period shows that from 2004 the imports have been rising faster than the exports owing to large amount of electronic equipment, transport equipment and petroleum-based commodities being in demand and imported.
The trade deficit for the last five years though has approximately ranged from USD 25 billion (2016) to USD 28 billion (2021) while peaking at USD 35 billion in the year 2018. One must not confuse self with the huge numbers above, after all the numbers show that the economy is functioning and growing and demand has been rising. This projects to a a consumer-led economy rather than producer-led economy.
Not everything is bad after all
As per the government’s annual target figures in the budget of 2021, around USD 31 billion worth of exports are to be achieved and imports have been capped at USD 55 billion and constraining trade deficit at USD 28.4 billion. The revised estimated figure for the annual trade deficit is in line with fiscal allocation for the financial year 2021-22 in the federal budget. Despite continuing on its locus of devaluing money to discourage imports, the trade deficit has been a disappointment. The initial bump could act as a warning for concerned technocrats for managing trade deficit or face the recurrent problem of depleting forex reserves and new debt arrangements which itself has been internalized by the masses through journalism, the trade deficit, debt crises have become the new normal.
The nudge factors
The value of Pakistani rupee in the decade of 2008-18 can be averaged at PKR 90 per unit USD, post-2018, the pegged value of the dollar has reached newer heights and is being exchanged at PKR 167.1 per unit USD. Within a span of three years the PKR has been devalued by around 67 per cent. This has bogged many experts in Pakistan in terms of its impact on lower- and middle-income groups because of the price rise of many commodities especially petroleum-derived products. One may be forced to think that the government may be trying to realize wild spirits of the economy, demand and supply from within, but it remains a pipe dream due to prudent
The pulse of the masses
IPSOS released its own consumer confidence index 2021, where inflation remains on top, but the number of Pakistanis who call it a top concern has decreased over the last year, another revealing projection says that one out of four Pakistanis believe that their financial situation has improved but the rest of three of four were pessimistic about their financial situation. So clearly the wild spirits are very far on a year-on-year understanding at least. Pakistan’s trade deficit has been recurrent and sort of internalized within the policy circles, it has metamorphosized into forms of satire, leverage, etc. The informal economy, the real supplement to the indicators however remains beyond the purview of revenue agency and balance of payment considerations.
“Consumer confidence survey index - September 2021,” Institut de Publique Sondage d'Opinion Secteur, 06 September 2021.
“Pakistan Rupee, Summary,” Trading Economics, 10 September 2021
Shahbaz Rana, “Trade deficit widens 120% in July-August,” The Express Tribune, 05 September 2021