Pakistan's trade deficit increased in July 2017 by an extremely disturbing 55.46 percent compared to July 2016, according to data released by the Pakistan Bureau of Statistics (PBS). Compared to June 2017 data July data revealed that exports continued their slide by 14.71 percent while imports increased by 6.64 percent. It's high time the government took appropriate mitigating measures to arrest the widening trade deficit. Unfortunately, however, during the administration of Nawaz Sharif this disturbing trend was blamed in its entirety on the Commerce Ministry which, in turn, argued that it had a limited role as problems experienced by exporters related to decisions by the Ministry of Finance, notably the failure to repay refunds that compelled liquidity-strapped exporters to borrow at market rates thus raising their costs of production - an argument supported by exporters. The Ministry of Finance led by Ishaq Dar acknowledged that refunds were piling up but added that Federal Board of Revenue was engaged in due diligence with several exporters overstating what was due. The two ministries provided legitimate arguments, however, while there is an obvious need to hasten the process of due diligence by FBR, yet at the same time the Ministry of Commerce needs to be more proactive in providing assistance to exporters by finalizing preferential trade agreements and free trade agreements (pending for the past four years).
The Commerce Ministry further argues that the decision to keep the rupee overvalued, estimated at between 15 to 20 percent by the International Monetary Fund, is making imports more attractive. The Ministry of Finance has refused to acknowledge that the rupee is overvalued and instead maintains that imports are rising due to heavy capital goods imports as an outcome of its pro-growth policies that would, in time, account for rising domestic productivity. This particular claim is not backed by data uploaded on the State Bank of Pakistan website. Machinery imports rose from 566.9 million dollars in April 2016 to 761 million dollars in July 2017 (with power generating machinery accounting for 50 percent of this rise, agriculture machinery declining by 50 percent and telecom imports rising from 82.7 million dollars to 113.8 million dollars with the main component being mobile phones). Petroleum products account for the bulk of the rise - from 521 million dollars to 1.119 billion dollars followed by transport - from 155.9 million dollars to 303.8 million dollars April 2016 and July 2017 data.
Exporters, particularly high end textile exporters, told Business Recorder that an overvalued rupee does not hurt their exports for two reasons: (i) their input imports are cheaper than would otherwise be the case thereby reducing their costs of production; and (ii) energy prices are quoted in US cents and therefore any attempt to deal with an overvalued rupee would automatically raise their energy costs. Be that as it may, an overvalued rupee cannot be considered an appropriate policy in the macroeconomic context and exporters, cognizant of this fact, advise the government to undertake measures to deal with the high cost of doing business in this country relative to regional countries, as well as to restructure the tax system that is skewed against the productive sectors, and, their long standing demand, to release refunds more quickly than has been evident.
It is extremely disheartening that a consistent rise in Pakistan's trade deficit has not yet been a source of serious concern of the PML-N government given the lack of appropriate mitigating policies. It is incumbent on the Ministry of Commerce to revisit its narrative as it clearly was unsuccessful in convincing the cabinet that the Ministry of Finance must amend some of its policies with a view to arresting and reversing the widening trade deficit; while, at the same time, it is critical for the Ministry of Finance to acknowledge its own role in the widening trade deficit.
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