Last fiscal year saw the trade deficit cross exports for the first time. It is early days yet, but this fiscal year could see trade deficit nearly double the exports. Provisional trade numbers for October are out, and a pretty picture it does not read. The trade deficit for October again breached $3 billion - sixth such instance in eight months. The cumulative trade deficit for 4MFY18 stands at $12.1 billion - a small matter of 31 percent higher year-on-year.
Imports in the 4MFY18 are up by 31 percent, while exports by just 10 percent. Oil prices in the period have averaged 14 percent more than the same period last year. This explains half the rise, but the other half is the scarier part. Non-fuel imports have been rising leaps and bounds. Oil prices are all set to average at least 20-25 percent more this fiscal year, by conservative estimates. All other commodities are also gradually showing teeth.
Here is an attempt at how the import bill could look like in the days to come. Machinery has been the fastest growing import category in the last three years, and for all the good reasons - having grown by an average 23 percent annually. Granted that it started from a low base, and a huge quantum of CPEC and power related machinery has landed the shores. That said, by no means has all the CPEC related machinery been imported. More is to come. Adopting a conservative measure, even if the machinery imports go up by only half the 3-year CAGR of 23 percent - it is set to touch an all time high of $13 billion for FY18.
Moving on, food and metal categories have both surged by an average 13 percent annually in the last three years. Construction related activities are not expected to die down anytime soon, and metal commodities have been on a rise of late. A conservative 10 percent rise in this category would yield a metal import bill of $4.4 billion.
The ever growing consumerism has meant more and more imported food items every year. The government has attempted to curb "unnecessary" imports, which includes food items as well. But even by government's own admission, this won't come into play before January 2018. Bear in mind, demand for pricey imported food items is not as elastic as it is perceived by the policymakers. But let's go with half the 3-year CAGR of 13 percent - and settle with little over $6 billion in food imports.
The transport story is well documented and Pakistan is adding more cars on the roads every month. Even the local manufacturing is in full swing and is expected to gather more steam. All of it means more imports, either in form of CBU or CKD. Being conservative, let us assume the transport imports grow by 10 percent, versus the 3-year average of 15 percent. That is another $3.6 billion gone.
All other imports have grown by 10 percent on an average in the last three years. Having faith in the government that some of its import curbing mechanism would actually work, let's assume this segment to grow by just 5 percent and it gives you $9.5 billion.
On to the elephant in the room - petroleum imports. Faced with issues of all sorts at the political ground - the last thing this government would have wanted was higher oil prices. Petroleum imports have averaged $1 billion a month thus far in FY18 - 13 percent more year-on-year.
Petroleum imports constituted 50 percent of all other imports when oil was $100/bbl, and 26 percent when it was $50/bbl. By that token, petroleum imports could easily go up to $13.5 billion in FY18, should oil price average in the band of $55-62/bbl (chances of which are high). At $73/bbl in FY14, Pakistan's petroleum import bill stood at $14.8 billion.
At a little less than $73/bbl, and with much more fuel demand, $13.5 billion seems reasonable, if not on the lower side. Mind you, it is the election year, and passing on the full impact to end consumer may not be a move PML-N would be aiming at, no matter how cash strapped it is. So, the question of price impacting the demand to any great extent may not even arise.
Add it all up and it gives $59 billion in imports. Too early to call it may be, but not all that distant.
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