The brakes have been applied to the widening current account deficit and as a result, imports have registered zero percent growth YoY while exports have sluggishly risen by 3 percent. This trend has been consistent so far this year with exports rising by low single digit numbers and imports stagnant.

The 4MFY19 numbers are more of the same with export growth led by food courtesy subsidies extended to the wheat sector while sugar exports tapered off. While textile exports are discouraging, knitwear was an exception registering 10 percent increase in growth. (Read “Textile exports remain glum,” published on November 19, 2018)

Though exports of basmati rice grew over the last month, overall rice sector has not fared too well this year. Better negotiations of trade agreements with rice consuming countries such as China, Malaysia and Indonesia may boost rice exports.

Pakistan’s oft overlooked small value added sectors of sports goods and surgical goods registered 4 percent and 2 percent growth while chemicals grew by 26 percent. Plastics, led by PET exports registered a 35 percent increase.

While essential energy imports of gas and crude petroleum increased by over $1 billion, the machinery group posted the largest decrease in imports YoY as CPEC projects reach maturity and the government curbs back on infrastructure projects. Higher prices and interest rates also decreased auto imports. On the other hand, palm oil imports declined due to lower global prices but increased in quantity by nearly 60,000 tons.

While higher interest rates and further bouts of devaluation may decrease imports, exports may suffer due to China-US war. As China will export less to US and hence will require smaller amounts of imports that are value added for US markets, Pakistan’s exports to China already a smaller proportion of bilateral trade may decline further. In this scenario, renegotiation of Pak-China FTA becomes imperative.

The decrease of CAD by 5 percent indicates that impact of currency adjustment and monetary tightening is starting to be felt. Over time efforts to curb the deficit will be more strongly felt especially when Pakistan goes into the IMF program. But the challenge is not only to decrease imports but to increase value added exports sustainably.