Pakistan’s Trade Deficit Decline by 27 percent in FY20 Despite COVID-19 Pandemic - Android

Pakistani exports registered another increase of over 14.04% in June as compared to May 2020 as exports are showing clear… Read More

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Pakistani exports registered another increase of over 14.04% in June as compared to May 2020 as exports are showing clear signs of recovery due to the efforts of the exporters to diversify the products in the wake of new opportunities arising amid COVID-19 pandemic and support from the government in this regard.

The exports in June 2020 saw an increase of 14.04%, with their value increasing from $1.39 billion in the previous month to $1.59 billion, according to the Pakistan Bureau of Statistics.

However, Trade figures showed that exports posted a decline on a yearly basis. The pace of the increase in exports started slowing down in March due to the COVID-19 pandemic.

Dr. Aadil Nakhoda, an economist and Assistant Professor at IBA, Karachi, told ProPakistani,

Exports in June 2020 were up 14% relative to exports in May 2020. This is a sign of strong recovery as market conditions began to normalize in May. Exporters in Pakistan had restarted their production. However, it is important to note that trading relationships have been disrupted and rebuilding them will take its time.

 

Firms with better export intelligence and more established trading relationships with their buyers and suppliers will be able to absorb the shock better. However, it is important to note that Pakistan’s exports are not only oriented towards the Western economies that reported the most intense lock down but limited to textile consumer products. The changing trend of demand for textile consumer products in the shorter run will be crucial. I expect exports to improve further as market conditions become clearer and capacity is further utilized.

Imports Rising

Imports for June increased by a whopping 30% to $3.71 billion, as compared to $2.86 billion in May 2020. Resultantly, the trade deficit was widened by 45% month on month to $2.12 billion in June 2020 as compared to $1.46 billion in April 2020.

A.A.H Soomro, managing director at Khadim Ali Shah Bukhari Securities told ProPakistani,

The recovery in imports is faster than exports. This is pent up demand as local economy resumes. The export trend is encouraging. At this pace, in September we should be near to pre-covid days insha’Allah.

He further said that there were no signs of worry on currency as yet.

Dr. Aadil Nakhoda added,

On the import-side, there was an increase of almost 30% in June 2020 compared to May 2020. Imports have increased as expected as the economy in Pakistan returned to normal conditions. Although we need to look at the disaggregated data on imports of oil, it is likely to be a driving factor as world oil prices had literally collapsed in the midst of the crisis. The recovery in oil prices is likely to have impacted the import-side figures though disaggregated data released later in the month will reveal a better picture.

As industries have also been revived after the lockdowns, the import demand for intermediate goods and raw materials must have increased. This sudden increase has resulted in a sharp swing in the trade deficit as it increased by almost 45%, he added.

Trade Deficit Contracts by 27.11% in FY19-20

Pakistan’s trade deficit contracted by 27.11% to $23.18 billion in the fiscal year 2019-20 as compared with the deficit of $31.80 billion in 2018-19 which was due to an import compression.

“Overall trade deficit is down by 27% in FY20 over FY19. I had earlier said that COVID19 will bring a lot of uncertainties in trading patterns. In essence, the government will need to boost exports in order to lower the trade deficit due to the available capacity,” said Dr. Aadil Nakhoda.

However, trade figures showed that exports posted a decline on a yearly basis, pulling the cumulative decline in exports in July-June down to 6.84%. The pace of the increase in exports slowed down in March due to the COVID-19 pandemic.

It declined from $22.95 billion to $21.98 billion during the period of July-June (19-20) as COVID-19 wreaked havoc around the globe. Whereas the imports were also down 18.61% to $44.57 billion as compared with $54.76 billion.

Pakistan’s exports in June 2020 declined to $1.59 billion as compared to $1.70 billion in June 2019 with imports dropping by 14.66% during the same period to $3.71 billion from $4.35 billion in June 2019. However, the trade deficit during June 2020 decreased by 20% as compared with June 2019.

In mid-March, because of a lockdown to control the spread of the pandemic, followed by a global economic slowdown, the export-oriented industry in Pakistan suffered as reflected in March 2020 figures, which showed the decline in growth by 8% compared to the same period last year. The situation persisted and, in April 2020, the exports showed a downward trend of 54% as compared to April 2019.

Exports Showing Signs of Recovery

Commenting on the trends of exports, Razak Dawood underscored that the export sector has been given a new impetus by the Government by allowing the export of Personal Protective Equipment, barring three items, which is indicated by the surge of exports in the month of June.

He added that other policies of the Government, for diversification of exports and international markets, will enable us to continue the thrust in the current fiscal year as well. The Advisor noted that the traditional exports of Pakistan, like garments and bedwear etc., are also picking up and would show improved performance in the new financial year 2020-21.

Talking about the export strategy, the Advisor reiterated that greater emphasis will be on product diversification, including engineering products, pharmaceuticals, agro products, and services.

It is the need of the hour for us to pursue the policy of ‘Make in Pakistan’ diligently and have rapid industrialization for substituting the imports and enhancing our exports’, said the Dawood.

He remarked that the beginning of export of home appliances and geographical diversification of cement export to China and the Philippines are clear signs of success. Mr. Razak Dawood added that he remains optimistic towards achieving the export targets in the new fiscal year and the policy of product and geographical diversification will continue to be actively pursued for success in this regard.

In a meeting with a delegation of Chambers of Commerce and Industry at Ministry of Commerce today, the Advisor told the delegation that the Government is following a three-year plan, gradually removing duties and tariffs, particularly on raw materials for the industry. He added that the Government will put a special focus on the engineering sector to boost the exports, including power sector equipment, auto industry (auto parts, Two-wheelers, Three wheelers and tractors), home appliances, mobile phones, sanitary ceramics ware, utensils & cutlery and pumps & motors. Mr. Dawood assured that the Government has taken important policy decisions in this regard and the engineering sector exports would considerably improve in the Fiscal Year 2020-21.

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