Pakistan’s trade deficit widens to 35-year high in FY16

Author: By Abrar Hamza

KARACHI: Despite continued low commodity prices in the global markets, Pakistan witnessed 35 years-high trade deficit as it surged by 8.14 percent to $23.96 billion during Fiscal Year 2015-16 (FY16) from $22.15 billion in the preceding fiscal year.

Pakistan’s trade deficit continued to widen this year, as the decline in exports and a rise in non-oil imports have offset savings from the lower oil import bill.

According to the data of Pakistan Bureau of Statistics (PBS), the country’s exports remained on lower trajectory, showing 12.1 percent yearly decline to $20.81 billion in FY16, as compared to $23.66 billion in FY15. However, against the anticipations, import bill dipped slightly by 2.32 percent owing to lower global commodity prices, as the total import receipts of the country settled at $44.76 billion in FY16 while it was $45.82 in previous fiscal.

The State Bank of Pakistan (SBP) said wbuhile Pakistan was already being affected by weak demand in major export markets, depressed unit prices, and high production costs, the decline in key crops this year (particularly cotton) has further steepened the export fall. This, together with a sharp increase in non-oil imports during the year, has entirely offset the gains from a decline in the oil import bill, it added.

In the month of June 2016, trade deficit surged by 10.04 percent to $2.81 billion as compared to the trade deficit of $2.55 billion in June 2015. The exports from the country to the world witnessed 8.73 percent decline in the month of June 2016 to $1.65 billion as against $1.8 billion of June 2015. Imports in to the country increased by 2.27 percent in June 2015 to $4.46 billion against $4.36 billion in corresponding month of preceding year. Exports have been witnessing a falling trend since July 2014. The government had projected a trade deficit target of $17.2 billion for the FY16.

“Undoubtedly, the continuous decline in exports is a big concern at the moment, which needed immediate attention. An early revival in exports is difficult due to weak demand and subdued commodity prices in the global markets. However, changing market dynamic, particularly the exit of China from textile exports due to rising labour costs, offers Pakistan an opportunity to increase its market share and integrate with global supply chains,” the SBP said.

Pakistan’s depressing export performance has been a cause of concern for quite some time now, the SBP said, adding that lower commodity prices, subdued demand from China, weak global recovery and high domestic production costs have contributed to this multi-year trend. An additional irritant that surfaced this year is the decline in production of key agriculture products like cotton, rice and sugarcane. Since Pakistan’s exports are mainly concentrated in resource-based products, their decline in Jul-Mar FY16 has been much more severe.

In contrast, Pakistan’s export of apparel and home textiles to the US and EU markets recovered noticeably, but the continuous drop in unit prices held back values. More specifically, Pakistan has been able to export larger volumes of readymade garments, towels, knitwear and bed wear in FY16 to the EU and the US markets, as the demand in these economies recovered.

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