IN THE NEWS: PAKISTAN – TRADE DEFICIT CONTRACTS 13% IN JUL-APR FY19 (MAY 16, 2019)

Written by admin on Thursday, May 16th, 2019

Selected by Olivier Immig & Jan van Heugten

Trade deficit contracts 13% in Jul-Apr FY19
SOURCE: The Express Tribune
Thursday, May 16, 2019
By SALMAN SIDDIQUI

KARACHI: Pakistan’s trade deficit widened over 22% to $2.66 billion in April 2019 because of increase in imports, particularly the expensive petroleum products for running oil-fired power plants during the current summer season when demand rose sharply.

The trade deficit stood at $2.18 billion in the previous month of March, the Pakistan Bureau of Statistics (PBS) reported on Wednesday.

“Possibly oil imports have increased…oil prices have gone (significantly) up in the international market in recent weeks and months,” said Arif Habib Securities’ Head of Research Samiullah Tariq while talking to The Express Tribune.

Imports increased 14.39% to $4.75 billion in April compared to $4.16 billion in March, the PBS data showed. Exports improved 5.81% to $2.09 billion in April compared to $1.98 billion in the previous month.

The bureau is yet to report sector/category-wise breakdown of imports and exports, which will come later in the month.

Oil imports make up around one-fourth of the total import bill, which stood at $45.47 billion in first 10 months (Jul-Apr) of the current fiscal year 2018-19, Tariq estimated.

To recall, Pakistan placed an order for the import of furnace oil recently, after quite a long gap. The order was made in an attempt to resume power production from oil-based power plants in the summer season.

However, the country reduces reliance on oil-based plants in winter as they produce the most expensive electricity in the energy mix.

Accordingly, they are given least priority in the energy merit list.

“We have reverted to achieving (comparatively) higher production from oil-fired power plants to meet increased demand during the current summer season,” an official at the Ministry of Energy (Power Division) said recently. The uptick in exports would have come from the textile sector, which earned almost 60% of the total export proceeds, which stood at $19.17 billion in the first 10 months, the analyst said.

Recent practices of traders suggest imports will return to higher levels ahead of likely further rupee depreciation as imports become expensive due to the currency’s weakness.

Moreover, traders also go for higher imports ahead of the announcement of annual budget, which is expected to be presented in the National Assembly on June 11. In the budget, the government is likely to introduce new taxes and increase the rate of existing taxes on imports.
10-month data

The 10-month (Jul-Apr) trade deficit narrowed down 12.82% to $26.3 billion compared to $30.17 billion in the same period of last year, reported the Pakistan Bureau of Statistics.

In Jul-Apr FY19, imports shrank 7.88% to $45.47 billion compared to $49.36 billion in the same period of last year. Exports inched down 0.12% to $19.17 billion compared to $19.19 billion last year, the bureau stated.

The deficit dropped almost 10% to $2.66 billion in April compared to $2.95 billion in the same month of last year.

The notable drop in trade deficit came after the central bank let the rupee depreciate 34% to Rs141.4 to the US dollar in the inter-bank market since December 2017.

The step was taken to revive sluggish exports and cut down exorbitant imports in a bid to narrow down trade and current account deficits, stabilise dwindling foreign currency reserves and improve international payment capacity, especially on two counts – imports and foreign debt.

Going forward, further currency depreciation is expected under the International Monetary Fund’s (IMF) 39-month $6-billion loan programme for Pakistan. The programme awaits the IMF board’s approval, which is likely in the next couple of weeks.

The government is set to make massive structural changes in the economy to create balance in cross-border trade, increase foreign income, reduce foreign expenditure and raise revenue generation in order to attract foreign and local investment in different sectors of the economy.

 

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