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Friday, June 7, 2024

Drop in trade deficit at the expense of fall in production

Alarming is the decline in import of machinery which stood second after the transport group, showing a decline of 32.1 percent on year-on-year basis in the month of August 2022.

Consumption driven economy of Pakistan is facing a number of challenges including persistent trade deficit. According to Arif Habib Limited, trade deficit dropped by 17 percent on year-on-year basis during August 2022.

Read more: 27% shrink in trade deficit leading to alarming revelations!

Total imports declined by 7.7 percent from $6577 million in August 2021 to $6071 million in the same month of the current year. Looking at the breakdown, import of transport declined the most i.e., 40.5 percent. This decline can be attributed to the heavy regulatory duties being imposed on imported vehicles and declining demand due to rising inflation.

Alarming is the decline in import of machinery which stood second after the transport group, showing a decline of 32.1 percent on year-on-year basis in the month of August 2022. Mechanized manufacturing in Pakistan is due to the machinery being imported from China, Japan, Thai Land, and the United States.

Although decline in imports is being celebrated but it is not being considered that the biggest loser in imports is the machinery group which defines the economic growth. Rising inflation and massive taxation have negatively impacted the businesses in Pakistan, causing closures and unemployment. Decrease in imported machinery would add up to the challenges being faced on the

Pakistan’s local machinery manufacturing sector is relatively small in size and a majority of the demand for machinery emanating from large industries such as construction, textile, energy etc. are met through imports. In addition, there is a lack of investment in technology and R&D in Pakistan due to which the country’s machinery sector lags behind the international market in terms of quality. As a result, majority of machinery demand is met through imports.

On the other hand, exports have gone up by 10.5 percent to $2482 million on yearly basis in August 2022 in comparison to $2247 million in August 2021. Textile exports stood at $1.6 billion showing 8 percent increase in August 2022 on year-on-year basis. Moreover, export of food items increased by 13.1 percent accounting for $367 million in August 2022 in comparison to $324 million in August 2021.