Pakistan’s trade balance is rapidly deteriorating

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  • Pakistan’s trade balance deteriorates sharply.
  • A news report highlights three negative developments on the economic front that have even shocked some federal cabinet ministers.
  • Developments include a high CPI, a rising import bill and a continued stock market hemorrhage.

ISLAMABAD: Pakistan’s trade balance is rapidly deteriorating, rising sharply to $5.11 billion in November 2021 from $1.94 billion in November last year. That’s a 163% increase.

This is an alarming trend as it will increase the pressure on the current account deficit in the coming months and without securing dollar inflows, mainly through debt generating instruments.

With the blessing of the IMF, the pressure on the exchange rate could intensify further in the weeks and months to come, The news reported.

The report highlighted three negative developments on the economic front that would have shocked even some federal cabinet ministers.

The first development concerned the increase in the consumer price index (CPI). A federal minister told the publication during substantive discussions that he expects CPI-based inflation to cross the 10% mark for November 2021 from 9.2% for October 2021. The federal minister said that he even told the Governor’s State Bank of Pakistan that the CPI might break above the 10% mark, but it rose to 11.53% for November 2021.

The second development is that, according to a senior economic official, the trade balance is showing a deteriorating situation in the wake of the increase in imports, but that he had not thought that the import bill would reach the 8 billion mark on a monthly basis in November 2021. against exports of $2.9 billion, so the trade deficit increased by $5.11 billion in just one month.

The overall trade deficit rose sharply to $20.7 billion in the first five months (July-November) of the current fiscal year, with exports reaching $12.37 billion, but imports reached $33.11 billion. The trade deficit stood at $9.54 billion in the same five months of the previous fiscal year. The trade deficit in the five months of fiscal year 2022 increased by 117%.

The trade deficit stood at $3.87 billion in October 2021, with exports standing at $2.7 billion and imports at $6.33 billion.

This prevailing trend shows that the trade gap is widening on a month-to-month basis and it might now have raised alarm bells among the people of Block Q (Finance Department).

Rising import bill

Shaukat Tarin, financial adviser to the prime minister, chaired a meeting at the finance ministry to discuss the rising import bill and ordered relevant authorities to take steps to reduce the import of luxury items.

Senior Finance Ministry officials shared import breakdown data, which shows import of food products amounted to $911 million, energy including POL and RLNG products at $2.4 billion dollars, raw materials at $2.2 billion, machinery at $1.14 billion and COVID-19 vaccine at $621 million in November 2021.

There is not much room left for the government to reduce imports, however, the Ministry of Finance is continuously considering options to ban the import of cars and increase the Regulatory Duty (RD) and Additional Customs Duty from 10 to 12. other luxury items to reduce the import bill.

The third negative development is the continued hemorrhaging of the stock market and the depreciation of the exchange rate as it collapses.

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