According to the latest figures released by the Federal Bureau of Statistics (FBS), Pakistan's trade deficit narrowed to $14.16 billion during the first ten months of the current fiscal year as compared to $16.84 billion in the corresponding period of last year, showing a contraction of 15.9 percent. The decline in deficit was attributable to a larger fall in imports than exports.
While imports during July-April, 2009 slumped by 9.78 percent to $28.9 billion from $32.1 billion during the same period in 2007-08, exports came down by only 3.03 percent to $14.8 billion from $15.2 billion last year. The fall in trade deficit was much more pronounced on a monthly basis as the gap between imports and exports during April, 2009 fell to $1.43 billion from $2.30 billion in April, 2008, indicating a sharp decline of 37.8 percent. Imports during April this year were worth only $2.79 billion compared with $4.09 billion last year while exports declined from $1.79 billion to $1.36 billion in the same period.
A glance over the latest data would reveal that the behaviour of country's trade balance so far is at variance with the original projections for 2008-09 which targeted exports at $22.1 billion. At the present rate, exports are not likely to exceed $18.5 billion which would mean a substantial shortfall of about $3.6 billion from the target. Though imports were not targeted at a particular level, yet they were expected to amount to $36 billion, resulting in a trade deficit of about $14 billion.
With the continuation of the present trend, imports could amount to $34.5-35.0 billion, resulting in a trade deficit of about 16.0 billion or so. Whatever the deviation from the original projections, the reduction in trade deficit during 2008-09 over the previous year would appear to be a welcome development in the sense that it would exert a less negative impact on the external sector balance this year. In other words, it would be easier for the country to finance a lower trade deficit through surging home remittances and increased official and non-official assistance and loans from a variety of sources including multilateral financial institutions.
In fact, there has already been adequate increase in foreign exchange reserves of the country due to reduced trade deficit and higher inflows from other sources which has helped the country to regain the necessary confidence in its solvency and improve other macroeconomic indicators. However, it may be added that reduction in trade deficit would have been much more welcome if it had been due to expansion in exports or contraction in imports due to import substitution.
As it is, exports appear to have declined mainly because of global recession and imports dived due to sluggishness of economic activity at home. Such a situation is certain to have ugly repercussions for the growth rate, employment of labour force and poverty level in the country. In our view, at the present juncture, weaker demand for exports and uncertainty about workers' remittances, in particular, entail very high risks for the external sector.
No less important is the mood of international community which could change any time due to strategic reasons and affect the flow of resources from external sources. Therefore, there is a dire need for the government to study the emerging situation in the external sector from all angles in order to prepare the country to face any kind of eventuality. Of particular importance is the urgency to diversify external trade and find non-traditional export items to insulate the country from the impact of business cycles in the developed world.
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