Continuing last month’s trend, the 2MFY18 trade numbers posted by PBS appear to have improved. Exports are up, imports have slowed and the trade deficit is down by 1 percent.
The 5 percent increase in exports was led by textiles, mostly because of knitwear and bed wear, followed by petroleum exports across all categories. Food exports such as wheat, sugar, and fruit continued to register an increase in numbers along with plastic products. The reasons for the rise remain largely the same with the currency devaluation, textile package, support prices and subsidies all playing a role.
Imports registered a 1 percent increase YoY with the biggest dip coming from the machinery group. Given the maturity of CPEC projects and the much needed austerity drive that is required to curtail the twin deficits, decline across all kinds of machinery comes as no surprise. Lower petroleum imports were an adjustment for the abnormally high numbers in the last month.
Since overall demand for cars has come down as the masses await new players to introduce new models, CBU imports are down nearly 40 percent. Existing players are focusing on local assembly and not importing much either.
High global production has lowered palm oil prices, thus helping reduce the food import bill despite the higher quantity imported. Soya bean oil imports have nosedived in dollar terms as well as quantities in spite of the global price dropping by nearly 5 percent due to the US-China trade war. Higher tariffs on Soya bean oil and past inventories of imports may have put a stopper on Soya bean oil imports.
Yes, the CAD needed the respite of higher exports and lower imports but there is little joy to be had. The decline in growth of imports is mostly because of the economy cooling down as aggregate demand tapers off. Though regulatory duties have played a role, it is higher interest rates, inflationary pressures, and waning of development spending that had been ramped up for the last two years that contributes to the lower numbers.
This indicates that the country is stepping off the economic expansion cycle. Already predictions of higher interest rates, inflationary pressure, and adjustment of PKR are floating. Imports may have cooled down for the moment but then the valued added and premium products in the country’s export basket such as sports goods, basmati rice, and surgical and medical instruments have not fared well either. So though the BoT numbers look promising, they are not a harbinger of things turning for the better.
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