According to the latest data released by the Pakistan Bureau of Statistics, country's trade deficit has widened to 17.96 billion dollars during the first half of the current fiscal year relative to the 14.42 billion dollar deficit that was recorded in the comparable period of the year before. This clearly and unambiguously reflects a worsening trend though government supporters are trying to put a positive spin on the data by focusing on the rise in exports by 11.24 percent during July-December 2017 relative to the comparable period of the year before or in total terms from 9.89 billion dollars in the first six months of 2017 to 11 billion dollars during the first half of 2018. It is not clear whether the rise in exports is attributable to the rupee depreciation or a rise in the international price of our major export items or whether this rise is due to a higher volume of exports or an amalgam of all three. Needless to add, each of these elements, if in play, necessitates more follow-up actions in terms of domestic policy measures.
Remittances rose by 2.5 percent during the first half of 2018 to 9.7 billion dollars as per the State Bank of Pakistan (SBP) website - a rise attributed mainly to remittances from the United States and the United Kingdom though there was a marked decline in remittances from Saudi Arabia. Reports indicate that the State Minister for Finance and Economic Affairs recently chaired meetings focused on signing an economic deal with Saudi Arabia which would include the kingdom agreeing to absorbing our skilled labour rather than merely unskilled or semi-skilled labour as at present.
However, gains in exports and remittances were much lower than the rise in imports during the period under review which increased by 19.1 percent to 28.97 billion dollars in the first half of 2018 in comparison to the same period a year before. This rise was attributed to the rise in the international price of oil, Pakistan's major import item. The SBP website provides data for the first five months of the current fiscal year (July-November) and notes that total imports rose from 17.7 billion dollars in 2016 to 21.8 billion dollars in 2018 - a rise of 4.1 billion dollars - out of which petroleum and products imports accounted for 1.2 billion dollars (from 4 billion dollars to 5.2 billion dollars) or around 30 percent; this was followed by machinery imports that rose by 799 million dollars (with power and electrical machinery accounting for the bulk of the rise) excluding textile machinery whose imports rose by 133 million dollars, and a rise of 308 million dollars of more imports by the transport group.
This therefore reveals that the government has failed to arrest the rise in other imports in spite of the decision taken on 16th December by the Economic Coordination Committee under the chairmanship of Prime Minister Abbasi to impose a regulatory duty on 137 non-essential items, including cars (less than 1800 cc), plastic articles, dry fruits, cigarette paper, tobacco, wall paper with the objective of reducing imports, generating more revenue to enable the government to fund the export incentive package which was an extension of the package announced in early calendar year 2017 by the then Prime Minister, Nawaz Sharif.
There is an urgent need for the government to begin to look at out-of-the-box solutions to improving the performance of the current account components - notably exports, imports and remittances. This would necessitate a revisit of not only the agriculture policy which appears to facilitate sugarcane (with sugar exports requiring a subsidy) over and above cotton growing farmers (with the cotton sector accounting for the bulk of our exports) but also the industrial policy which continues to remain hostage to delays in tax refunds as well as higher costs of production due to higher input costs notably of utilities compared to regional competitors. Imports would have to be more rigorously checked while economic deals with the Middle East countries must have a component of importing our skilled workforce.