Trade deficit seen widening in fiscal year 2012

The country's trade deficit is expected to widen by more than original estimates for the current fiscal year due to fall in cotton prices in the international market and a decline in output due to floods in Sindh. Sources said around 70 per cent increase in exports in 2010-11 was primarily due to higher international price of our major export items which may no longer be applicable in the current fiscal year as the cotton prices had been on decline in the international market recently.
An official on condition of anonymity said remittances and export growth were a blessing for external account last fiscal year especially as programme support from bilateral and multilaterals had almost dried up. The volatility in oil prices as well as the need to import urea (due to gas load shedding) and sugar (due to large scale destruction of crops in Sindh) would also negatively impact on the trade deficit in the current fiscal year.
Well-placed sources in the Planning Commission dealing with agriculture sector estimate a cotton production of around 12.5 million bales instead of the earlier projection of 15 million bales this year due to recent floods in Sindh and monsoon rains in the Punjab.
Recently, the Economic Co-ordination Committee (ECC) of the Cabinet approved import of 400,000 tons of sugar on the recommendation of the Sugar Advisor Board (SAB) to avert possible shortage from January 2012 onwards. The import of sugar was considered critical by the SAB to maintain stability after reviewing available sugar stocks in the market as well as the expected sugar crop.
Around 83 percent of different vegetables were destroyed during the floods/monsoon rains, which compelled the government to import onions, tomatoes and potatoes from India to meet domestic demand. The rising trade deficit would, in turn, have an adverse impact on current account balance and foreign exchange reserves, which, in turn, would increase pressure on the exchange rate of the country.
The gross official reserves in the next three years are expected to deplete considerably largely because of widening trade gap and repayment to the International Monetary Fund (IMF) starting with $1.2 billion first instalment from February 2012. Analysts say that continued growth in remittances during the ongoing fiscal year would provide support to financing the trade gap.