Pakistan has racked up a record high foreign trade deficit of $9.427 billion for 10 months of the current fiscal year, which is about 8.6 percent of the country''s gross domestic product (GDP), and a steep increase over 4.86 percent of GDP just a year ago.
This huge deficit during July-April 2005-06, according to Federal Bureau of Statistics (FBS) release on Friday, is a 93.65 percent higher than 2005 record deficit of $4.868 billion, and the gap is still widening steadily.
During this period, the country''s total imports and exports stood at $22.95 billion and $13.52 billion, respectively, which indicate that Pakistan spent more on importing petroleum products, machinery, sugar, raw material and other goods and services. Everybody paid more for oil, while Pakistan''s businesses sold far less exportable products overseas.
The alarming gap has forced many economists to trash their forecasts and pencil in lower estimates of the economy''s strength in the coming months.
More worrisome, several economists say, is the possibility that the swelling trade deficit will eventually cause a steep drop in rupee value against dollar and other currencies. Local importers would demand more for dollars in the coming months to finance their surplus imports. It would also bring a rapid rise in interest rates and lower the living standards.
The government has projected exports at $17 billion, and imports at $21 billion, allowing a trade deficit of $4 billion for the FY 2005-06. However, the figures show that trade deficit has surpassed the target by 135.6 percent (or $5.427 billion) in just ten months.
Besides, the data show that in ten months, total imports exeeded the government''s expectations by $1.95 billion. However, in achieving exports target it still lags behind.
President Pervez Musharraf recently claimed that by the end of the fiscal year, Pakistan would achieve export target of $18 billion. Here the question arise: how it is possible, as in ten months the country''s total exports have reached only $13.52 billion and, most importantly, it also shows a negative growth of 4.62 percent in April 2006 as compared to previous month.
A glance at the trade data shows consistent rise in the country''s imports, which is disturbing for the trade officials, as the exports-imports gap would be much wider than the estimated $4 billion.
Independent economists observe that if this trend sustains, it would be hard for the government to check the soaring deficit from crossing $12 billion mark by the end the year.
They fear, and expect, weaker economic growth in the coming months as trade provides an additional drag on recovery that may be faltering under the weight of high energy prices, stalling job creation and tepid consumer spending. According to government, this imbalance was caused by the sharp rise in imported petroleum products (in quantity and price), machinery, manufactured goods and food.
The data show that Pakistan''s economy pulled in 40.38 percent more imports during ten months of the current fiscal year than $16.35 billion recorded during the same period of last year. However, the exports of Pakistani goods showed an increase of 17.80 percent against $11.48 billion of last year.
The burgeoning deficit has put pressure on the rupee, which could also create inflationary pressure, as Pakistan pays more for imported goods. It suggests that the rupee may still need a fall to help the narrowing the gap. But, there is a risk of pushing higher the inflation, if it does.
The FBS trade bulletin further depicts that during April 2006, goods worth $1.45 billion were exported, recording an increase of 11.79 percent against $1.29 billion of last year. Imports have been recorded at $2.26 billion during April 2006, which reflect a growth of 18.73 percent as compared to $1.90 billion in April 2005.
The figures show that the trade deficit in April has widened by $807.92 million, or 33.61 percent, against $604.67 million of April 2005. However, comparing exports of April 2006 with March, the bulletin says the figures registered a decline of 4.62 percent, which stood at $1.52 billion. The imports during the same month were also down by 15.88 percent as compared to $2.68 billion in March.