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Arresting the soaring trade deficit

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Arresting the soaring trade deficit​

Steps can be taken to lift output of oil, gas, refined petroleum products to cut imports



Sarfaraz A KhanFebruary 21, 2022

experts believed that country s imports would touch 7 billion which would result in a trade deficit of around 4 billion photo file

Experts believed that country’s imports would touch $7 billion, which would result in a trade deficit of around $4 billion. PHOTO: FILE

KARACHI:
The robust increase in exports is often regarded as one of the biggest achievements of the government by different ministers, and rightly so.
But the positive impact of double-digit increase in exports is being offset by the surge in imports.
In fiscal year 2018-19, when the current PTI government came to power, Pakistan recorded exports of $22.96 billion, as per data of the Pakistan Bureau of Statistics (PBS), which depicted a drop of 1.1% from 2017-18. Exports fell again to $21.39 billion in the following year but climbed to the record high of $25.3 billion in 2020-21. Now, it seems that exports may rise further to another all-time high of more than $30 billion in the current fiscal year. For the first seven months of FY22, the PBS has reported exports of $17.67 billion, showing a strong growth of nearly 24% from $14.26 billion in the same period a year earlier. The seven-month export number translates into an annualised figure of $30.3 billion.

However, if one looks at the import data, the outlook doesn’t appear that rosy anymore. Imports for the first seven months came in at $46.47 billion, depicting a strong growth of 59% year-on-year. The rise in imports easily outpaced the increase in exports by a wide margin. The ballooning import bill is diminishing the positive impact of increase in exports. Trade deficit has now climbed to $28.8 billion, nearly twice as large as the deficit of $15 billion reported for the first seven months of previous fiscal year. Although exports have climbed substantially, when looked at from the lens of net exports (exports minus imports), the situation doesn’t appear good.

The meteoric increase in trade deficit has weighed heavily on the value of Pakistani rupee. Currency devaluation and high energy prices have been one of the primary reasons for inflation, with the Consumer Price Index (CPI) reading coming in at 13% in January 2022 – the highest in two years.
A closer look at the import data reveals that the increase was driven in large part by the double whammy of high commodity prices and their strong demand. Petroleum group imports increased by 113% in the first six months of the ongoing fiscal year to $10.18 billion from $4.77 billion in the first half of last year. Demand for energy products like petrol, diesel and LNG rose as business activities climbed. The volumetric imports of petroleum products went up by 29% to 9.2 million tonnes.

It is often argued that the government can’t do anything about the high commodity prices and must spend billions of dollars on buying crude oil and petroleum products. However, this assumption is a bit misleading and it absolves the government of its responsibility to do whatever it can to bring down the energy import bill. Policymakers can take measures aimed at lifting domestic production of oil, gas and refined petroleum products, which can bring down Pakistan’s import requirements.

Lack of policy framework

The domestic energy sector – particularly the exploration and production (E&P) industry that extracts hydrocarbons and the oil refining industry that turns crude oil into petrol, diesel and other refined products – has long been neglected by successive governments.
Unlike other sectors such as textile and agriculture, the E&P and oil refining industries have received little support of the government.
There is no policy framework that could encourage growth. As a result, both E&P and oil refining industries have been struggling with weak volumes. Had these industries been running at optimal levels, they could have reduced the need to import high quantities of crude oil and petroleum products and the country’s import bill might have been lower.

Oil refineries, including companies such as Cnergyico (formerly Byco Petroleum) and Parco, can together process up to 19.4 million tons of crude oil annually. They can satisfy a vast majority of the country’s demand for refined products. However, the refineries have been operating at low capacity, with utilisation rate of just around 60%. As a result, the domestic production of petrol and diesel has remained low, which forces the country to import expensive fuels.

As for the local oil and gas producers, state-owned OGDCL, the country’s largest E&P company, produced 36,892 barrels of oil and 870 million cubic feet of gas on a daily basis in the previous financial year. By comparison, 10 years ago, the company’s daily oil and gas production was higher at 37,370 barrels and 1,013 million cubic feet respectively. Although it is true that the country does not have sufficient oil and gas reserves to meet all of its demand, the performance of the state-backed E&P companies might still have been better if the government had focused on this area.
The government, however, hasn’t run out of time. It can still take steps that can improve the performance of oil refineries and E&P companies and lift domestic oil, gas and refined products’ production. For example, by introducing new policies that incentivise oil and gas exploration work and expansion of oil refineries, it can encourage growth in this sector.

Oil refineries, in particular, can quickly ramp up petrol and diesel production if policymakers figure out a way to increase furnace oil consumption since the low utilisation rate was primarily due to weak demand for furnace oil. This can be done, for instance, by linking 10% to 15% of power generation with furnace oil consumption. At the same time, the refineries should be encouraged to modernise their plants and phase out furnace oil from their production profiles.

In short, policymakers need to concentrate on lifting domestic oil, gas and refined products’ production. An increase in output can reduce reliance on imported commodities and help arrest the soaring trade deficit.
The writer focuses on subjects of business and economics, specialising in the energy sector

Published in The Express Tribune, February 21st, 2022.

https://tribune.com.pk/story/2344476/arresting-the-soaring-trade-deficit


Are we again looking at a CAD above 10 billion USD? and what are our debt repayments and liabilities for next year? How we are going to manage it and worse of it all if war breaks out between Ukrain and Russia. I think IK got the gov at very very wrong time of History. Inflation seems to be not going anywhere soon rather it can increase so is the unrest and public opinion against current Gov.
 
Oil refineries can’t be run on full capacity because due to not being deep conversion type they will produce large quantities of furnace oil that no one wants.

Upgrading and building new deep conversion refineries is a multi-year program and has already begun.
Oil refineries are old and produxes poor quality fuel

Pakistani govt needs to invest in oil refineries it self ..it allowed old refineries to operate destroying the chance for upgrade
 
Will it back to square one in June 2023?

Gov. YearFin. YearTotal TradeExports (billions)Imports (billions)Trade Balance
PML-N Yr 12013-2014$70.18$25.11$45.07-$19.96
PML-N Yr 22014-2015$69.65$23.67$45.98-$22.31
PML-N Yr 32015-2016$65.48$20.79$44.69-$23.90
PML-N Yr 42016-2017$73.36$20.45$52.91-$32.46
PML-N Yr 52017-2018$84.13$23.23$60.90-$37.67
PTI Yr 12018-2019$77.66$22.96$54.70-$31.74
PTI Yr 22019-2020$65.94$21.39$44.55-$23.16
PTI Yr 32020-2021$87.63$31.30$56.33-$25.03
 
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Will it back to square one June 2023?

Gov. YearFin. YearTotal TradeExports (billions)Imports (billions)Trade Balance
PML-N Yr 12013-2014$70.18$25.11$45.07-$19.96
PML-N Yr 22014-2015$69.65$23.67$45.98-$22.31
PML-N Yr 32015-2016$65.48$20.79$44.69-$23.90
PML-N Yr 42016-2017$73.36$20.45$52.91-$32.46
PML-N Yr 52017-2018$84.13$23.23$60.90-$37.67
PTI Yr 12018-2019$77.66$22.96$54.70-$31.74
PTI Yr 22019-2020$65.94$21.39$44.55-$23.16
PTI Yr 32020-2021$87.63$31.30$56.33-$25.03
Remittances and exports in PTI govt are much higher than PMLN govt
 
Remittances and exports in PTI govt are much higher than PMLN govt
Why would you consider an increase in remittance a success?! Especially when a significant amount of it is through high interest term deposit in USD?
 
Why would you consider an increase in remittance a success?! Especially when a significant amount of it is through high interest term deposit in USD?
Which significant amount is through high interest term depopsit? And yes increasing remittances by 10 billion usd through legal channel is a success.
 
Which significant amount is through high interest term depopsit? And yes increasing remittances by 10 billion usd through legal channel is a success.
Roshan accounts.. 5 year term deposits at 7% interest in USD denomination. Think it is around $3 billion USD worth of remittance.

FDI is what gov. policy should aim for. Remittances are only a bandaid fix that is not meant to last if your currency is ever meant to stabilize
 
It is totall amount of 3 billion dollars in 3 years and remittances increase is more thn 25 bilion in 3 years. How it is only because of these 3 billion dollars?

No doubt FDI is the best option but, FDI will not come when there are blasts and killings every day in country + you are in a kind of war with west + when a pendemic is going on and inflation is on its peak thrloughout the world.
 
Roshan accounts.. 5 year term deposits at 7% interest in USD denomination. Think it is around $3 billion USD worth of remittance.

FDI is what gov. policy should aim for. Remittances are only a bandaid fix that is not meant to last if your currency is ever meant to stabilize

The government is aiming for FDI, you genius. But it needs short-term stop gap measures after what N League did to the economy.
 
Trade imbalance has surfaced as an issue in recent years
but also the period includes emergence of Covid-19

2021 was rough last 2 quarters in term of Trade import/export balance
The negative Trade balance is 100% hurting Pakistan's Economy , we can't keep going -10 Billion USD Differential each year

1645459193386.png




Pakistan's Foreign Exchange has risen up , Possibly hitting 30 Billion Mark
Presently parked at healthy +24 Billion USD Mark


1645459421001.png




Remittance is approaching +10 Billion USD
1645459901904.png




Importing Cruide OIl and Refined Products (We have no refinery
  • 10 Billion Dollar
  • We have not been able to negotiate cheap oil from Saudia or Iran

Luxury Items:
  • Importing Electronics (5 Billion Dollars )
  • Importing Tea (1 Billion Dollar)
  • Importing Cereals???? (1 Billion Dollar????) , each year we create wheat (Excess) which is the most ideal cereal but we import foreign cereal
1645461008855.jpeg



Strange Items
  • Importing Animal Fat ? we slaughter record number of animals cow and goat and we have shortages of animal fat ???? 3 Billion Dollar Bill



1645460425053.png




Our Minister of Import Export can't bring a simple Policy

a) Use FAT from animal Fat , from Qurbani we do each year and store it and save 3 Billion Dollars , this fat is thrown out on Qurbani day Tones and tones of fat

b) 1 Billion Dollar worth of Cereal in Nation where every one drinks tea in morning or toast of bread / butter in morning or eggs, Luxury cost of 1 Billion Dollar


  • 4 Billion Dollar Saved right here by using Qurbani Day Animal Fat by Storing it and No Cereal Imports allowed



No Official Figures
  • Chocolates (Kit Kat , Mars , Twix)
  • Foreign Butter
  • Foreign Candy
  • Foreign Chips imported from Middle East
  • Foreign Soda Drinks imported from Middle East
 
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It is totall amount of 3 billion dollars in 3 years and remittances increase is more thn 25 bilion in 3 years. How it is only because of these 3 billion dollars?

No doubt FDI is the best option but, FDI will not come when there are blasts and killings every day in country + you are in a kind of war with west + when a pendemic is going on and inflation is on its peak thrloughout the world.
$3 billion is a significant part of the remittance.. and my larger point is that remittances are not an accomplishment. Many Imran Khan supporters seem to make that to be a proud achievement. It should not be seen as a measure of success.

PS: I don't really have an opinion about how good or not good the current Pakistani administration is for its people. I'm sure the electorate will make that call. Just making an academic point that is often not accepted here.
 
Remittances and exports in PTI govt are much higher than PMLN govt
I was just pointing to the trade deficit of the third year of each Government:

Gov. YearFin. YearTotal TradeExports (billions)Imports (billions)Trade Balance
PML-N Yr 32015-2016$65.48$20.79$44.69-$23.90
PTI Yr 32020-2021$87.63$31.30$56.33-$25.03
 
Why would you consider an increase in remittance a success?! Especially when a significant amount of it is through high interest term deposit in USD?

That roshan account you are talking about are not counted in remittances unless money is taken out in PKR. Its success because before that money used to come through illegal channels. Still there is potential for more.

Illegal money channels create imbalance in economy. Which is why our CAD is never under control.
 

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