Trade deficit outpaces exports

Source: http://dawn.com/2008/04/12/ebr5.htm



By Mubarak Zeb Khan

ISLAMABAD, April 11: Trade deficit hit an all-time high of $14.486 billion in the first nine months of the current fiscal year, up by 44.27 per cent from $10.041 billion recorded last year, mainly due to surging oil prices and high import of consumer items.

The deficit exceeded the exports of $13.476 billion.

The gap widened as the import of mobile phones, gold, luxury vehicles, perfumes, cosmetics, bullet proof vehicles etc penetrated the local market due to changing lifestyles.

The import bill of wheat and palm oil witnessed highest-ever increase due to rise in their prices in the international market.

The trade deficit escalated to $13.54 billion in 2006-07 from $1.412 billion in 1999-2000. The trend shows that the trade deficit in the current fiscal year will cross the figure of $20 billion putting an extensive pressure on the balance of payments.

If the non-debt creating inflows -- foreign direct investment, portfolios investment, GDRs and grants -- did not match the gap, the new government will be left with no option but to seek debts from donor agencies and domestic sources for financing the balance of payments.

Official figures released on Friday by the Federal Bureau of Statistics (FBS) showed that the import bill increased by 24.73 per cent to $27.962 billion in July-March 2007-08, against $22.419 billion last year. It witnessed an alarming increase of 45.78 per cent in March 2008 when it stood at $3.823 billion against $2.622 billion in the same month last year.

Exports grew by 8.87 per cent to $13.476 billion in July-March against $12.377 billion last year. The export growth recorded the highest-ever increase of 17.29 per cent in March 2008. This growth was the second straight in a row in the current fiscal year, which is unprecedented because the average growth over the past two years has been six per cent per month.

Analysts said the government should rationalise duty and taxes to regulate imports of the luxury items.

They say government should also focus on the value-added sector and diversify the export base instead of focusing on textile sector which is fetching maximum financial support.

With the rising oil bill, it is expected that the import bill will cross the figure of $36 billion by the end of June 2008. Last year the import bill was around $30 billion.

The export target of $19.2 billion has now become a far cry as the textile exports are steadily on the decline for last few months despite doling out huge subsidies from the national kitty. As the food inflation recorded the highest-ever increase, the government was compelled to slap a ban on export of certain food commodities to avert domestic shortages.

Due to this highest-ever trade deficits in goods and services the current account deficit has also reached an alarming level. The current account deficit will cross over $10 billion by the end of June 2008. Last year the current account deficit was $8.114 billion from over $500 million of 1999-2000.