The government is expecting improvement in trade deficit to 9 percent of the GDP in the current fiscal as against 9.5 percent of last year. However, the government is reviewing the factors that led to sharp deceleration in exports during the first ten months of current fiscal.
According to Economic Survey 2006-07, Pakistan has recorded laudable export performance during the last several years, with exports growing at an average rate of almost 16 percent per annum over the last four years (2002-03 to 2005-06).
Despite improvement in the international trade environment, Pakistan's export growth witnessed abrupt and sharp deceleration to less than 4.0 percent in the first ten months (July-April) of the current fiscal year after growing at an impressive rate of 16 percent per annum in recent years.
Exports were targeted at $18.6 billion or 12.9 percent higher than last year but during the first ten months of the current fiscal they were up by 3.4 percent - rising from $13457.0 million to $13909.0 million in the same period last year.
Exports of food group declined by 3.5 percent of which the share of rice and fruits was 2.6 and 14.3 percent, respectively. Rice export declined due to lesser production caused by adverse weather conditions which kept the domestic price higher and it was more profitable to sell within the country than export. Exports of textile manufacturing grew by 6.2 percent, however, export of raw cotton, cotton cloth and bed wear, on the other hand, registered a decline.
The rise in prima cotton price (genetically modified version) which is imported from the USA and is a critical input for producing high quality bed wear and fabrics, has made these items less competitive in the global market.
Further, the discriminating anti-dumping duty on the bed linen export to the EU also adversely affected Pakistan's competitiveness. Raw cotton declined due to lower production as well as increased domestic prices. Poor quality of cotton on account of contaminated issue is adversely affecting the exports of spinning industry.
After growing at an average rate of 29 percent per annum during 2003-2006 Pakistan's import growth slowed to a moderate level during the current fiscal. Pakistan's imports grew by 8.9 percent or to $2047 million in the first ten months of the current fiscal. Imports were targeted to decline by 2.1 percent in 2006-07 to $28.0 billion from last year's level of $28.6 billion. As expected, growth in import decelerated to 8.9 percent during the first ten months (July-April) of the current fiscal year as against hefty increase of 40.4 percent in the same period last year.
The deceleration in import growth is caused by several factors which include: the pursuance of tight monetary policy to shave off excess demand, softening of international price of oil, decline in imports of cars as a result of change in policy, decline in the imports of fertiliser because of large carryover stock of last year, and decline in the imports of iron and steel as Pakistan Steel's coming back to its normal production level.
Almost 31 percent contribution alone came from petroleum group, mainly on account of the surge in imports of petroleum products both in value and quantity. Imports of machinery contributed almost 30 percent to this year' rise in imports bills.
This is followed by imports of telecom, which accounted for 13 percent to the overall rise in imports. Almost three-fourth contribution came from three categories (machinery, petroleum and telecom) to this year's rise in imports. Interestingly, consumer durables' contribution was negative (-1.8 percent) mainly on account of a decline in the imports of cars. Therefore, contrary to the general perception, the contribution of consumer durables was negative.
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