Trade deficit of a consumption driven Pakistani economy has remained a consistent problem. In August 2022, trade deficit shrank by 27% as compared to the same period in last year, as per Federal Board of Revenue (FBR). Finance Minister Miftah Ismail attributed this decline to the efforts taken by the government to curb imports which would aid in improving current account balance as well.
Miftah Ismail said in a tweet, “the trade deficit stood at $3.2 billion in August.” He also said that as per the Federal Board of Revenue (FBR), imports in August were $5.7 billion, which were down by 13% from the same period last year.
The minister said energy imports were up 5% to $2 billion while non-energy imports were down 21% to $3.6 billion.
The exports were $2.5 billion, up by 13%, the trade deficit was $3.2 billion, down by 27%, and remittances were up 2% to $2.7 billion, the finance minister shared.
“The exports plus remittances [are] still shy of imports but we will get there,” he added.
Per FBR imports in Aug were $5.7b ⬇️ 13% from last year. Energy imports were $2b (up 5%) & non-energy imports were $3.6b (⬇️ 21%). Exports were 2.5b up 13%. Trade deficit was $3.2b ⬇️ 27%. Remittance were $2.7b up 2%. Exports + remittance still shy of imports. But we’ll get there
— Miftah Ismail (@MiftahIsmail) September 1, 2022
In order to curb the deficit and fiscal instability, federal government and the State Bank of Pakistan (SBP) took administrative measures to reduce imports. Central bank reserves had fallen as low as $7.8 billion.
The government banned imports of more than three dozen of non‑essential luxury goods. The Ministry of Commerce (MOC), imposed the ban through SRO No. 598(I)/2022, effective from 19 May 2022.
Moreover, on 20 May, 2022, SBP published a circular requiring authorized dealers to receive approval from the FX operations department before issuing or amending a line of credit (LOC), registering, or amending a contract, making an advance payment, or authorizing transactions on an open account or collection basis.
The country’s major imports including fuel, edible oil, and pulses were exempted from the ban.
Except for automobiles, cell phones, and home appliances, the government relaxed the restriction last month. However, such commodities were significantly taxed. To limit imports, the government implemented a series of regulatory duties on a variety of commodities.
On the other hand, PTI spokesperson on economy and finance Muzammil Aslam said in a tweet, “factoring in services & income balance, the August CAD will be close to the tranche we received from IMF.”
State Bank of Pakistan (SBP) announced on Wednesday that it has received loan tranche of Extended Fund Facility (EFF) totaling to USD 1.16 billion.
He stated that drop in exports and remittances from peak, almost $1bn is quite worrisome.
Muzammil also highlighted, “Remember when we left CAD dropped to $500mn.”
With all import shut down the import touched $5.7bn. Worrisome again drop in exports from peak and remittances, almost $1bn. Factoring In services & income balance, the August CAD will be close to the tranche we received from IMF. Remember when we left CAD dropped to $500mn https://t.co/qX3PBh38BU
— Muzzammil Aslam (@MuzzammilAslam3) September 1, 2022
According to data released by the State Bank of Pakistan (SBP) the remittances sent home by overseas Pakistanis declined by 8.6% (month-on-month) and 7.8% (year-on-year) to $2.5 billion in July. According to FBR, remittances increased by 2% in the month of August which signals that significant improvements are required.
The trade deficit narrowed by 18% year-on-year to $2.64 billion in July due to the steep reduction in import bill. The import bill fell by 38% to $4.86 billion in July 2022 as compared with $7.88 billion in June 2022. Worrisome was the state of exports which declined by 27% in the month of July. Pakistan textile exports hit 11-month low in July 2022 to $1.48 billion, down 13 per cent month on month (MoM). However, increase in exports by only 13% in the month of August also proves that the export sector is still performing below its potential.
The export sector of Pakistan is performing below its potential due to numerous hindrances such as power cuts, soaring power charges, raw material shortages and imposition of hefty taxes.
Pakistan Bureau of Statistics and the central bank are yet to release their data for the month of August.