Pakistan's total value of imports hits $ 7.42 b
22 October 2006
ISLAMABAD ââ¬â Pakistanââ¬â¢s imports from global sources are beating across all foreign trade projections, making its foreign trading partners much more upbeat, but sending warning signals to the government.
The reasons: exports are moving dismally slowlyââ¬â widening the trade deficit.
Unlike all previous projections by the government, imports rose an 30.3 per cent during the first quarterââ¬âJuly-Septemberââ¬â of the current fiscal 2007. The total volume of imports was a record $ 7.429 billion, official statistics unveiled this week show. Imports in the like quarter of fiscal 2006 were $ 5.22 billion. The import target for 2007 is $ 28 billion, which industry sources say will be surpassed. The growth in imports can, however, slowdown this year, because of reduced import of machinery, except for the hi-tech industrial and telecom equipment in some of the sectors which are going through a boom to feed the domestic market, as well as for exports. Import of autos, electronics, home appliances, cellular phones, including those with big price-tag will also go on as the per capita income is rising.
While high prices of imported oil were a big factor in pushing up the import bill, it may, or may not, decline. But, that will depend , on the trend of international pricing, energy situation and supplies. Already these high energy prices have raised the cost of industrial output ââ¬â and exports ââ¬â where the industry are complaining of having to face a tough competition to their products. In fact, international competition, to several products, including textiles, is one of the factors limiting the overall exports. The situation has led the industry to demand a decisive reduction in the cost of utility prices. But, the government has not responded favourably to these demands.
While international oil prices have, in recent months, declined from $78 to $56 a barrel, Prime Minister Aziz has announced that the government plans no reduction in oil prices as it has to make up and recoup the subsidy it has been paying in the past. The current, high, domestic prices of oil will " continue until the government losses in subsidy become negative. The governmentââ¬â¢s policy, however, is not to earn revenue from oil imports," Aziz said over the weekend.
Exports in the first quarter rose 2.8 per cent to $ 4.269 billion, compared to the like quarter of 2006. Exports in the same quarter last year were $ 4.149 billion. The export target for 2007 is $ 18.6 billion.
The high rise in imports with a rather dismal export growth has widened the trade deficit to $ 3.159 billion compared to $ 2.399 billion in the like quarter of 2006. The trade deficit in the first quarter is higher than that of last year chiefly because imports rose sharply, while exports moved slower than the same quarter of 2006. In fact, this quarterââ¬â¢s export performance is so poor that it could not contain the widening trade deficit notwithstanding that the imports this year are moving up, but slower than last year. The projection of trade deficit in 2007 is $ 9.4 billion.
All indications, on the basis of present foreign trade volumes, are that it will widen further. The government, however, maintains that this yearââ¬â¢s trade deficit, as a percentage of GDP will decline. Its other forecasts are that the Pakistani currency will stay stable, notwithstanding the widening trade deficit.
It also points out to $ 750 balance of payments surplus during July-August this year.
The situation will require a very strenuous effort to catch up with the Ministry of Commerce (MoF)-set export target of $ 18.6 for the whole of fiscal 2007. However, even if this target is achieved, it is considered to be too low in order to narrow the trade deficit. The actual exports in whole of fiscal 2006 were $ 17.4 billion. The present slow movement of exports may make it difficult to attain even that modestly increased target for 2007. One of the key elements in the export slowdown is an eight per cent reduction in export of textile items which include ready-to-wear garments. The governmentââ¬â¢s grant of a 6.0 per cent subsidy on textile exports has, so for, not impacted this trade. Its export rather has declined. The government has also announced a Rs 25 billion package to help export textiles.
Fiscal 2007 has also experienced a negative export growth of several other products, including leather, surgical and medical equipment, and footwear, even though the government made these export tax-free. The State Bank of Pakistan, (SBP), the central bank, is already cautioning the government regarding the negative implications of the growing trade deficit over the current account deficit. The trade deficit in 2006 had piled up to $12 billion, and had raised howls over the situation, as it pressured the current account balance. The balance was partly managed as a result of rising home remittances of overseas Pakistan working in the Gulf, Saudi Arabia, and North America. It was also helped by sale of state-owned enterprises to foreign investors as well as by an increase in FDI inflows. The government is upbeat over the inflows of home remittances and FDI this year. However, forex proceeds on account of sale of state-owned enterprises are likely to decline as the government is still readying more units to be pout on the auctioneerââ¬â¢s block.
In spite of the difficulties of this situation, the government is allowing free imports in order to keep the country on its high-growth track. GDP growth is likely to be around 6.5,a bit down from the actual of 2006.
SBP has advised the commercial banks in Pakistan and abroad to put in place steps to mobilise savings and remittances from overseas Pakistanis in order to help improve the balance of payments situation. The remittance, with a $ 4.2 billion inflow in 2006 had played a significant role in bridging the balance of payments gap. SBP sees a larger potential of remittances growth, particularly from the Gulf. It has set a target of $ 6.0 billion for 2007.
What are the export prospects for the year? The target may be achieved, but industry leaders are not upbeat about it. They criticise the present high cost of utilities and the taxation structure. Consumer groups, however, allege that the industry had, over the last five decades, become so dependent on government subsidies for exports, tax breaks and enjoyed high rates of profits in the domestic market that now when international competition, under the WTO regime, is impacting them, they are unable to withstand it in terms of prices, variety and quality of products.
They blame the industry and exporters themselves for landing in this ordeal. Economists also point out that the fragility of a range of industries is evident from the fact that it is unable to compete against even Bangladesh, Vietnam, and Malaysia ââ¬â the comparative new comers in textiles and several other products. The government, in consultation with industry, has set for it 2007 textile export target of $ 11.5 billion. But, it will indeed require vary concerted efforts to achieve it in the present global competitive environment.
Almost three dozen key export products have recorded a downtrend during the first quarter of this year. These include almost all the value-added textile products, leather garments and leather products, and carpets and rugs.
Rather than being innovative, and fighting aggressively, the manufacturers of these slump-hit products are still more demanding government subsidies and tax breaks. But, the government seems to be in no mood to do so, because of financial constraints, and its growing distaste to keep the industry on crutches.
