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The trade balance of the country continues to be in the red. According to the latest data released by the Federal Bureau of Statistics (FBS), on 12th April, exports of the country during March, 2010, at $1.807 billion, were higher by 37.78 percent than $1.311 billion in the corresponding month last year.
However, this sizable increase was more than offset by a sharp rise of 39.60 percent in imports, resulting in a much higher trade deficit of $1.480 billion or 41.89 percent in March, 2010, as compared to the same month of the previous year. The upward trend in trade deficit could also be ascertained from the growing imbalance in the recent monthly figures.
At $1.480 billion, the trade gap in March, 2010 was higher by as much as 53.40 percent than $0.964 billion in the previous month. However, since the trade deficit in the earlier months of 2009-10 had narrowed down considerably, due mainly to a steep decline in imports, the balance of trade for the first nine months of the current fiscal still appears to be tolerable.
During July-March, 2010, trade deficit of the country declined by 14.29 percent to $10.921 billion from $12.741 billion in the same period last year, due to a rise of 6.01 percent in exports and a decline of 3.89 percent in imports. The latest data on the balance of trade of the country is disturbing for a number of reasons.
Developments, during the first few months of 2009-10, had raised the hopes of a positive outcome in the trade balance that was expected to improve the current account substantially and reduce the need to resort to foreign borrowings, including from the IMF, but the growing deficit in the latest period is definitely a cause of concern.
If this trend continues and other components of the current account do not show a corresponding improvement, the country could face several problems like the loss of foreign exchange reserves, further depreciation of the exchange rate of the rupee and rising inflationary pressures in the economy. Another worrying aspect is that Pakistan seems to have employed the known policy options in this particular area, but has not been able to get the desired results.
For instance, the exchange rate of the rupee is now determined by market forces and domestic demand has been constrained by a stringent monetary policy stance. These two important measures were expected to improve the trade balance considerably by boosting exports and restricting imports overtime. Continuity of these measures and relative stagnation in imports indicates that the real problem is with the level of exports, which has not responded appropriately to the stimulus measures.
This could be verified from the fact that, based on the current trends, the country's expected exports, at around $18-19 billion during 2009-10, would continue to be much less than the value of imports and hardly show any improvement over last year's exports of about $18 billion, despite huge depreciation in the rupee rate. It is not difficult to see that exports of the country are crucially dependent on the productivity/growth rate of the economy, which is now held hostage to highly adverse factors like growing energy shortages, increasing lawlessness, lack of good governance, war on terror and political uncertainty.
While foreign investment is down, domestic investors are also scared and looking for greener pastures abroad. Government, too, appears to be confused and has no proper roadmap to reverse the situation. For instance, in his latest trip to Washington, Prime Minister has again requested the US President for a civil nuclear deal to meet the country's energy requirements. Such a route to salvation would take at least a decade or so to materialise, even if it gets the needed approval from all the concerned US quarters in the near future, which is highly unlikely.
The country, in fact, needs to explore some other ways and do something on a war footing to overcome the energy shortages, to avoid chaos on a large-scale and ensure resumption in economic activity. Export-boosting policies could only work if the country is able to produce something in surplus to sell. The government will be well-advised to analyse carefully the latest trends in the trade balance and do everything possible, in its power, to minimise the imbalance in the trade account, in a short period of time, to save the country from another crisis.

Copyright Business Recorder, 2010

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