Pakistan’s growing trade and frightening Trade deficit

According to Pakistan's latest economic data, its economy appears to be moving at very high speed, but there are many contradictions in this progress. Where Pakistan has registered an economic growth of 5.7 percent in this financial year so far, on the other hand its macroeconomic data is showing some other situation, something very drastic.

Pakistan's trade deficit is continuously increasing. Trade deficit according to the Ministry of Commerce of Pakistan widened 17.3% year-on-year to $27.3 billion in the cumulative nine-month period.

Pakistan exported goods worth $2.23 billion in March, was the highest level in four years, reflecting a massive year-on-year increase of 24.4% or $437 million when compared with the amount in March 2017.

 According to official statistics released by Pakistan Bureau of Statistics (PBS) on April 9 the trade deficit, gap between exports and imports during July-March period, was equal to 106% of the government’s annual target of $25.7 billion.

Exports in July-March increased by 13.14% to slightly over $17 billion but these were only equal to 74% of the annual export target of $23.1 billion. In absolute terms, export receipts were up by $2 billion during the first nine months. On the other hand the value of imports stood at $44.4 billon, which was 15.7% or $6 billion higher than the import bill booked during the first nine months of the last fiscal year. The nine-month import bill was equal to 91% of the annual target.

Export receipts are still 260% less than the import bill in the first nine months. The higher trade deficit is on an already higher base, as Pakistan had closed the last fiscal year at a record $32.4-billion deficit.

Trade deficit and trade with China

In 2006, Pakistan’s exports to China totalled $500 million, while the imports from China during the same year totalled $2.7 billion. Now, in the year 2017, exports have reached $1.6 billion while imports have amounted to $10.6 billion. The 2006 trade volume of $3.3 billion has now risen to $12.2 billion in just a year. In Pakistan-China trade, imports have increased much more than exports. This has increased pressure on Pakistan’s foreign exchange and has also increased its trade deficit. There is a real need for Pakistani products to have easy access to the Chinese market to achieve balance in imports and exports.

This situation is also worrisome for Pakistan because its current account deficit has increased to the alarming level. Pakistan is expected to book a current account deficit of around $16 billion during the current fiscal year 2017-18 – against the government’s target of $9 billion. This will have direct implications for foreign currency reserves that have slipped to $11.7 billion by end of March.