In its first quarterly economic review report, the planning ministry disclosed that in terms of quantity, the country’s exports were decreasing and Pakistan has sustained a loss of $1.6 billion in the July-September quarter of the current fiscal year.
In addition to that, the rise in global commodity prices also resulted in a $3 billion increase in exports, which equates to 42% of total exports during the period, as per the report that comprised some high-quality analysis.
If there had been no rise in global prices, Pakistan’s exports would have plummeted in dollar terms during the first quarter of FY22.
The ministry of planning showed disagreement on Friday regarding the policy of limiting imports to control the yawning current account deficit, claiming that the focus should be on exports that got vital support from a rise in global commodity prices.
The report said, “Quantity exported of cotton cloth went down substantially and only the global price surge saved the day for exports of textiles in dollar terms”.
It showed Pakistan Bureau of Statistics (PBS) figures, revealing that cotton cloth exports dropped by 75% in quantity terms resulting in a potential loss of $1.7 billion.
The report’s revelations should be viewed as a huge setback to the claims made by Commerce Advisor Abdul Razak Dawood and the textile lobby – All Pakistan Textile Mills Association (Aptma) pertaining to a massive increase in exports.
Exporters have disappointed the nation as well as the government despite having the benefit of low taxes and cheaper energy prices.
The report highlighted that imports rose again to their highest-ever level at $17.5 billion and recorded a 64.3% growth during the first quarter of the current fiscal year to fulfill the needs of growing economic activities in Pakistan.
The report further questioned the policy stance taken by the State Bank of Pakistan (SBP) and the ministry of finance to tackle the issue of the current account deficit that had widened to $5.1 billion during the first four months of FY22.
The four-month deficit was around 100% higher than the annual target of $2.3 billion.
The ministry for planning and development said, “A broad-based policy thrust is needed to focus on the increase in exports rather than curtailing imports”.
It added, “The momentum in imports is especially endangering the prospects of macroeconomic stability and the existing momentum in exports along with heightened remittance inflows are partially offsetting the growing trade imbalances and debt servicing burden”.
The report highlighted that the country needed to make $21.8 billion worth of foreign debt-related payments during the current fiscal year, out of which public sector liability was $17.7 billion.
The planning ministry said that the foreign debt servicing liability was estimated at $17.2 billion.
The ministry cited historical data and said that Pakistan’s economy had a strong correlation between an increase in economic activity and the increase in imports. Global commodity prices and import growth have moved in tandem from January 2000 to September 2021.
The post-pandemic revival in economic activity has again driven the import demand and an imperative to preempt any balance of payments crisis in the near term.
It underlined that the SBP had made two major policy decisions; enhancing the cash margin requirement for 500-plus items and the market-determined exchange rate policy.
According to the ministry of planning, “Real Effective Exchange rate (REER) has historically shown ineffectiveness to curb imports in the past. Import substitution strategy has also failed in the past. Cash margin requirement was used in 2008 as well but was unable to make a significant contribution to bridle imports”.
The ministry’s views are in line with those expressed by the World Bank that has also discounted import-related restrictions as a suitable policy to stem a serious balance of payments crisis.
The ministry added that global commodity prices were correlated with import growth mainly owing to the fact that Pakistan’s imports were relatively inelastic and the bulk of the import basket consisted of essential goods.
Food, consumer goods (mobiles and vehicles), and textile-related imports have reached their highest-ever share while energy imports have their lowest share in the last two decades.
The ministry stated, “One lesson can be drawn which is that four-fifths of imports are essentials and could not be avoided.”
During the previous fiscal year, food imports equated to 13.4% of total imports, other consumer goods 8.7%, intermediary primary goods 3.4%, intermediate manufactured goods 14%, petroleum and other energy-related imports 18%, capital goods and other machinery 10.3%, and textile goods 10.4%.
While discussing the economic outlook of the country, the planning ministry stated that the economic stimulus package announced by the government had aided in the revival of the manufacturing sector. However, the pace of the recovery is still held up by supply chain obstructions at the local and global level.