The PBS has released trade figures for the first month of the new fiscal year and there is some good news and some bad news. To begin with the good news, imports have finally shown signs of tapering off with YoY increase controlled to less than 1 percent and MoM imports down by 15 percent.
To mar the rosy picture is the stagnant performance of exports that saw a mere 1 percent increase YoY and a 13 percent decline MoM. Resultantly, the soaring trade deficit has come to a shuddering halt at $3.1 billion, same as July last year. Since last month, trade deficit has gone down by $615 million.
With CPEC investments concentrated mainly in power generation and infrastructure projects, there has been a surge in machinery imports.
However, machinery imports have been on the decline with July being no different as power generation machinery imports were down 36 percent YoY. Food imports, led by edible oil, decreased by 12 percent as well.
Food exports, with growth divided roughly between fruits, wheat, sugar, and by a lesser measure rice, remain the drivers of growth. Amongst textiles, knitwear and cotton yarn were the only sectors that witnessed some sluggish improvement. Despite repeated spats of currency devaluation and the export promotion package, improvements in exports have not been significant.
While essential imports such as oil and raw cotton for the export-oriented textile sector are bound to increase, import curbing measures appear to be having an impact. Imposition of 100 percent cash back margin requirements on non-essential imports and withdrawing of advance payment facility of up to $10,000 for importers seem to have some affect in halting imports. Raising interest rate by 100 basis points may have also contributed to stemming the tide of rising imports.
However, the measures by SBP are tourniquets at best. Staunching Pakistan’s bleeding CAD will require more than stopgap efforts to halt the rise of imports. It requires stronger import substitution measures and a more diverse and competitive export basket.
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