Pakistan’s trade deficit rose by 100% during the first quarter of the ongoing fiscal year. The country experienced an exceptional surge in its imports which outpaced the increase in its exports resulting in a trade deficit amounting to $11.7 billion during the first quarter of the ongoing fiscal year.
The external trade figures issued by the Pakistan Bureau of Statistics (PBS) on Monday reflected that the trade deficit greatly surpassed expectations.
The deficit was standing at $5.9 billion during the same period of the previous fiscal year. The rapidly increasing trade deficit suggests that the gap will surpass the target set by the government for June next year of $28.4 billion.
As per the national data collecting agency, during July-September FY22, exports rose by 27.3% and came close to $7 billion in comparison to $5.4 billion during the same three-month period last year.
In absolute terms, the exports rose by $1.5 billion during the first three months of FY22. The exports reached 27% of the annual target of $26.3 billion. The Ministry of Commerce has put forth projections that exports will reach $31 billion at the end of the fiscal year 2021-22. Imports rose by 65% to $18.6 billion during the first three months. In absolute terms, the imports increased to $7.3 billion, based on data from the PBS.
The State Bank of Pakistan (SBP) introduced a cash margin requirement for more imported goods in addition to curbing consumer financing to subside some import pressure. The federal government has not taken any measures to support the central bank’s efforts in this regard.
According to sources, the finance minister held a meeting last week to assess the external sector numbers. The members who attended the meeting said that the minister was so upset with the situation that he abruptly ended the meeting within five minutes.
The swelling import bill has raised the external gross financing requirement that had been estimated at $20 billion and around $25 billion by Pakistan and the International Monetary Fund (IMF) respectively. Rising imports will either increase the external borrowing requirement or put a dent in the official foreign exchange reserves as imports outpace exports.
An important source of debt-free financing is the remittances provided by overseas Pakistanis. According to projections provided by the central bank, remittances are expected to show a single-digit growth.
Foreign direct investment has dropped by 20% within the first two months of FY22, aggravating the government’s shortcomings. The imports are currently estimated at nearly $72 billion against the previously projected number of $55 billion. This matter regarding external sector vulnerabilities will be a point of discussion during the upcoming talks with IMF.
Situation in September
PBS reported that Pakistan’s exports of goods were slightly less than $2.4 billion in September 2021. They were higher by 26% or $493 million over the same month of last year. Imports stand at the highest level of $6.5billion, which is higher by 51% or $2.2 billion, as per the PBS data resulting in taking the yearly trade deficit up by 70% to $4.1 billion in September 2021.