The following are excerpts from State Bank of Pakistan's 1st quarterly report 2017-18: The trade deficit witnessed a sharp YoY increase of 29.8 percent in Q1 -FY 18. A rebound in export earnings did not suffice to contain the pressure of increasing imports; as a result, the trade deficit expanded to US$ 9.1 billion (Figure 5.11).
The increase in imports was broad-based, with transport and petroleum imports surging by a third and food imports rising by 19.3 percent. Exports, meanwhile, in an encouraging break from declining trend of the past couple of years, grew by 10.8 percent in Q1 -FY18.
Exports The double-digit growth in exports took place on the back of strong performances of rice, value-added textile, and petroleum, and was well supported by machinery, chemicals, pharmaceuticals, and medical and surgical instruments. While the prices exhibited a mixed trend, positive quantum played a more dominant role in raising the export revenues in general
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Table 5.6: Export of Major Items during Jul-Sep
values in million USD; growth in percent
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Values Quantum
YoY YoY
Unit FY17 FY18 growth FY17 FY18 growth
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Rice 000MT 242.7 320.2 32.0 482.4 621.1 28.7
a) Basmati 000MT 88.8 90.9 2.4 92.3 86.7 -6.1
b) Others 000MT 153.9 229.3 49.0 390.1 534.4 37.0
Seafood 000MT 64.1 75.4 17.6 22.0 28.5 29.6
Sugar 000MT 0.0 42.0 0.0 92.0
Meat 000MT 52.8 44.8 -15.2 15.2 11.4 -25.0
Raw Cotton 000 MT 17.5 29.6 69.1 10.2 17.8 74.0
Cotton Yarn 000 MT 307.0 320.9 4.6 107.1 123.3 15.1
Cotton Fabrics M SQM 547.6 528.7 -3.4 536.4 450.2 -16.1
Hosiery (Knitwear) 000 DZ 592.3 647.6 9.3 25,708.0 29,674.0 15.4
Bed-wear 000 MT 528.9 567.0 7.2 89.6 91.1 1.8
Towels 000 MT 178.6 180.2 0.9 42.3 40.3 -4.7
Readymade garments 000 DZ 524.4 608.1 16.0 7,686.0 9,136.0 18.9
Solid Fuel incl. naphth 000 MT 178.6 15.1 -91.5 6.7 40.5 504.5
Leather Manufactures 127.3 132.3 4.0
Foot wear 000 pair 26.9 25.2 -6.3 2,631.0 2,222.0 -15.5
Pharmaceuticals 000 MT 52.2 50.7 -2.8 2.5 1.5 -40.0
Electric fans 000 No. 7.1 4.8 -32.4 364.0 1,61.0 -55.8
Cement 000 MT 77.3 62.7 -18.9 1,489.3 1,223.6 -17.8
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Data Source: Pakistan Bureau of Statistics
Textile
Textile exports jumped by 7.9 percent during Q1-FY18, after posting a decline of 6.3 percent in the same period last year. The recovery is attributable to a strong growth in value added products (knitwear, bed wear, readymade garments and synthetic textiles), which contributed nearly 40 percent to the overall increase in total exports (Table 5.7). Steady recovery in Pakistan's traditional export destinations such as the US and the EU continues to give a boost to Pakistani exports. For instance, US customs data shows an increase of 7.9 percent in shipments of textile and apparel products from Pakistan in Q1-FY18, as compared to a decline of 10.8 percent in Q1-FY17.6.
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Table 5.7: Pakistan's Exports of Major Textile Products (Jul-Sep)
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Value in Million USD Growth(%)
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FY15 FY16 FY17 FY18 FY16 FY17 FY18
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Raw Cotton 50 55 17 30 11.0 -68.5 69.7
Readymade Garments 478 506 524 608 5.9 3.6 16.0
Hosiery (Knitwear) 630 630 592 648 0.0 -6.0 9.5
Bed-wear 554 514 529 567 -7.2 2.9 7.2
Cotton Yarn 468 383 307 321 -18.1 -19.9 4.6
Towels 185 214 179 180 15.9 -16.7 0.9
Cotton Fabrics 631 561 548 529 -11.1 -2.4 -3.4
Total Textile Exports 3,410 3,221 3,018 3,257 -5.6 -6.3 7.9
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Data Source: Pakistan Bureau of Statistics In terms of growth, Pakistan outperformed all its regional competitors in the first quarter (Figure 5.12a and 5.12b). However, share of Pakistani textile products in total US imports remains low at 3.55 percent against India's 7.23 and Vietnam's 7.13 percent.
The uptick was also visible in primary textile items. Increased quantum on the back of stronger demand from China, a major market for Pakistan's primary textile exports, explained the surge. It needs to be kept in mind that China's cotton stock stands at a multi-year low, which partly contributed to the surge in demand for imported cotton.
Going forward, consistently strong demand from the EU market, recovery in US demand (Figure 5.13a and 5.13b), strengthening commodity prices, and domestic policy measures to create a favorable export environment, and a considerable rise in import of textile machinery, should all bode well for textile exports.
Rice Rice exports also exhibited a strong recovery of 32 percent in Q1-FY18, after witnessing a decline of 28.0 percent in Q1-FY17. While the uptick in basmati rice exports was a meager 2.3 percent, it was non-basmati exports which increased by almost a half to reach US$ 229.3 million, up from US$ 154 million last year. Data available for the first two months of the quarter indicates increased shipments to the Middle East, China and African countries.
In case of basmati, exported quantities continued to fall, but higher unit values prevented the overall export growth in Q1-FY18 from going into negative.
Pakistan has been losing share in the global basmati trade since FY 11. However, a silver lining may have emerged: the European Union, a key basmati market, imposed a new import restriction that calls for a substantial reduction of maximum residual limit of Tricyclazole (a pesticide used to prevent attack of pesticides on rice crop). While the use of this pesticide is minimal in Pakistan, for Indian exporters it could mean a virtual ban in the short-run. A significant uptick in basmati exports, therefore, seems likely.
Cement Cement exports fell by 18.9 percent to US$ 67.2 million in Q1-FY18. Growth of 14.6 percent in dispatches to Afghanistan failed to offset a sharp fall of 27.3 percent in exports to India (Table 5.8). Moreover, buoyant local demand (as observed in higher local dispatches) and capacity constraints are also straining cement exports.
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Table 5.8: Pakistan's Cement Exports to Major Destinations
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(000 Metric Tons))
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Quantum % Growth
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Q1-FY17 Q1-FY18 Q1-FY17 Q1-FY18
Afghanistan 574,735 658,488 6.9 14.6
India 379,764 276,246 143.0 -27.3
Other 590,648 352,337 -18.6 -40.4
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Data Source: APCMA
Imports The YoY growth in the country's import bill more than doubled to 22.2 percent in Q1-FY18, after growing by 10.2 percent YoY in the same period last year. Increase in imports was broad-based with the petroleum group accounting for 24 percent, and increases in food and transport each contributing 10 percent, to the total increase in the import bill.
Unlike last year, the contribution of machinery items to import growth in Q1-FY18 was negligible (Figure 5.14). Similarly, textile imports also fell due to lower imports of raw cotton.
Steel Metal imports continued to grow on the back of strong demand from domestic construction activities, and growing appetite of the automobile and telecom industries. As shown in Figure 5.15, activity in the construction sector has a strong positive correlation with steel consumption in the country.
Within steel, a huge jump of 114 percent was observed in the import of scrap.
This can be traced to some shift in the demand from ready-to-use products towards scrap following the measures taken by the government to support local steel industry. These included: (i) the imposition of regulatory duty on major final products (which was first introduced in the range of 5 to 15 percent in January, and was raised further to up to 35 percent in June 2017); and (ii) imposition of 24 percent anti- dumping duty on products imported from China, effective from June 2017. The impact on local steel production has been quite encouraging: while domestic billets production increased by 63.4 percent YoY in Q1-FY18, production of hot/cold coils posted an increase of 33.0 percent. Importantly, in addition to import of steel scrap, manufacturers of steel products have also increased the use of fragmented steel obtained from ship-breaking activities.7
Transport Fuelled by cheap car financing schemes, government initiatives like Prime Minister Youth Business Loan, and the need to bridge the shortage in public transport infrastructure, the demand for passenger as well as commercial vehicles is on the rise. Transport imports, therefore, rose by 38.2 percent during Q1-FY18, following an increase of 8.4 percent in Q1-FY17.
The impetus to transport imports mainly came from passenger cars and auto parts. Within the group, import of completely knocked down or semi knocked down units (CKD/SKD) increased by almost a quarter, with those for heavy commercial vehicles taking the lead, rising by 35.7 percent. The burgeoning imports of CKD/SKD in this category have translated in improved domestic manufacturing numbers. The import of completely built units of motor cars and motorcycles also saw a significant increase. Besides household use, fuel-efficient imported cars are finding strong demand, particularly from individuals who intend to get registered with ride-hailing services (Uber and Careem).
Palm oil Within the food group, edible oil imports continued to grow. The import of soybean and palm oil grew by 78 percent and 38.5 percent, respectively. The edible oil imports, which have a causal relationship with domestic production (due to longer shelf life of vegetable oil and ghee), depict an anticipatory behavior with regards to prices. Stockpiles in drought-hit Southeast Asian producers remain lower than expected and may lead to an increase in prices as the new calendar year begins. This anticipated price appreciation may have led to higher imports in Q1- FY18, as oil mills booked higher purchases in advance.
Pakistan's dependence on imported edible oil continues unabated due to lack of any advances in domestic oilseed crop cultivation. Oilseed crops, such as sunflower, have failed to take hold on a large-scale due to farming issues such as overlapping of the sowing period with that of major crops such as wheat and cotton. Moreover, technological handicap, lack of research orientation and absence of any meaningful policy support are other major impediments to import substitution. Reliance on import duties, while failing to reform the real sector, only adds to the burden on the consumers, who face an inelastic demand.
Machinery The meteoric rise in machinery imports seems to have been arrested in Q1-FY18. Machinery imports, which had surged by 60.0 percent YoY in Q1-FY17 and reached US$ 2.7 billion, remained almost stagnant at that level this year with a much modest 1.8 percent YoY increase witnessed in the first quarter. Import of textile machinery, however, witnessed a surge of 26.5 percent. The revival in textile exports and SBP's subsidized credit schemes are making a significant contribution in this regard.
The biggest fall was observed in office equipment machinery, followed by power generating machinery, construction and mining machinery. Within office equipment, data processing machines and other portable computers saw a significant decline. The fall in power generating machinery is in line with expectations, as early harvest projects under CPEC near final stage of completion and machinery needed for these projects may already have been imported and reported last year.
Energy imports The energy import bill shot up 34.5 percent YoY to US$ 3.2 billion in Q1-FY18, and accounted for 22.2 percent of overall imports during the period. While quantum imports of both crude and POL products (petrol and HSD) remained strong (Table 5.9), a 16.2 percent rebound in average crude prices during the period also contributed to the rising import bill.
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Table 5.9: Import of POL Quantum in Q1
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Quantity Growth
(million tonnes) (percent)
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FY16 FY17 FY18 FY17 FY18
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HSD 520.9 657.6 897 26.2 36.4
Furnace oil 1,626.6 2,166.1 1,833.8 33.2 -15.3
Crude oil 2,436.2 1,916.5 2,673.4 -21.3 39.5
Petrol 1,058.3 1,273.4 1,401.4 20.3 10.1
Other 49.0 118.0 119.0 140.8 0.8
Total 5,669.7 6,043.5 6,849.2 6.6 13.3
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Data Source: Oil Companies Advisory Council With regards to crude, a particularly sharp rise in the quantum of imports was noted in Q1. The increase can be traced to a significant rise in the country's operational oil refining capacity, as repair works on the country's largest oil refinery (Byco Petroleum's 120,000 bpd refinery complex, which had been shuttered after a fire accident in 2015) were completed and the refinery resumed operations from Q1-FY18. As a result, the country's overall crude imports amounted to US$ 811 million in the quarter, up 44.2 percent over the same period last year.
With an increase in the operational refining capacity and higher crude imports, domestic production of both petrol and HSD grew by double digits (Chapter 2). Nonetheless, given the strong demand from the transport sector (in line with the growth in domestic production and import of passenger cars as well as heavy commercial vehicles), quantum imports of both HSD and petrol grew sizably during the period.
Meanwhile, in case of furnace oil (FO), higher international prices (up 22.4 percent YoY in Q1-FY18) pushed up the value of their imports in the quarter, even though the country imported lower quantities of the fuel as compared to last year. Power generation from FO also declined during the period (Table 5.10). Given the government's stated objective to shift the fuel mix away from FO, use of the fuel in power generation is expected to decline further. This creates the need for more rigorous planning of FO imports by all stakeholders - independent power producers, PSO and the petroleum division - to ensure that only the required quantity of FO is imported during any period.
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Table 5.10: Power generation by source (in GWh)
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Q1-FY 17 Q1-FY18 Abs change
Hydro 12,407 12,187 -220
Gas 8,221 10,384 2,163
Furnace oil 8,892 8,650 -243
Coal 24 1,324 1,300
Nuclear 1,289 2,155 866
Others 1,172 2,039 867
Total 32,005 36,740 4,734
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