BoT: wrong kind of record

25 Jun, 2018

A record was set last month when the trade deficit touched a new all-time high at $3.67 billion, breaking January 2018’s record of $3.64 billion. With just one more month to go before this fiscal year wraps up, the prognosis continues to look increasingly bad.

Imports for May grew by 15 percent YoY, as the rupee continued on its depreciation ride. One recalls Dar time when there were repeated calls to devalue. The slippery slope downwards however has evoked fresh alarm bells and doomsday scenarios. Rise in oil prices has certainly not helped matters as import of petroleum products increased by 31 percent, accounting for nearly half the increase in imports since same period last year.

Exports’ 32 percent jump YoY for May is commendable but unsustainable and nowhere near enough to counter the increase in imports. Textile and food products continue to lead export growth with 32 percent and 28 percent respectively. Rice and wheat accounted for about a third of the rise in exports. Dependence on agri based products propped by support prices, subsides, and misfortunes of others are not only untenable in the long run, it also puts increasing amount of stress on Pakistan’s scarce water resources. (For more information read “India’s loss – Pakistan’s gain,” published on 6 June, 2018, “More crop per drop,” published on 22 June, 2018 and “Water scarcity and agri-export woes,” published on 19 June, 2018).

Repeatedly, the government has attributed the growth in exports at least in part to the Rs180 billion package offered last year, which was recently extended with coverage of additional sectors. However, earlier this month APTMA, arguably the biggest beneficiary of the package, rejected the extension. According to media reports, the association released a statement earlier this month saying that the extension would reverse the growth in exports because of deletion of the condition of using only indigenous materials for production.

The export package has had limited success, more because of the lack of implementation than any other reason. Continued growth in exports through agri products is unviable in the long term, in part because of water scarcity and in part because the national kitty cannot continue to bleed to support the sector’s exports. Clearly, better more coordinated efforts need to be made to rectify the situation. Pakistan’s exports must diversify if the country wants to a strong growth trajectory. However, in the short run exports cannot grow sufficiently to counter imports. Curtailing imports significantly is the only way towards macroeconomic stability in the current situation.

Copyright Business Recorder, 2018

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