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Monday, April 15, 2024

Trade deficit soars by 86%: Is the economy doing any better?

As the trade deficit for July 2021 clocked in at US$3.1bn as reported by the Pakistan Bureau of Statistics, it is an alarming indicator for our economy which struggles under the brunt of the IMF bail-out package, Covid-19 restricted economic activity measures and shutting down of borders for trade.

The Pakistan Bureau of Statistics has reported a rise in trade deficit in July 2021 by 86%. The trade deficit is one of the economic problems Pakistan has been facing due to its consumption-led approach and stagnant nature of exports.

Despite having a huge bank of resources and a hefty population comprising of a youth bulge below 35 years of age, the trade deficit continues to rise. Although external factors including volatility on international markets and Covid-19 induced economic meltdown are responsible, Pakistan needs to take some responsibility for its actions.

With the measures to curtail the spread of Covid-19, exports have seen a dip to below $2bn. On a month-to-month basis, exports showed a decline of 25.3% which in reality is a worrisome factor for the policymakers. Moreover, with the volatility and uncertainty in the major export markets due to Covid-19 restrictive measures, the exports are likely to slow down.

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In addition, the value-added sector had warned the government about the possibility of raw material shortage. The stakeholders cautioned the government that if the required quantity of cotton yarn was not made, the country may lose on export orders which would ultimately divert to rival countries.

The trade gap has been widening since December 2020. The surge in trade deficit is mainly led by exponential growth in imports with comparative slow growth in export proceeds from the country. The import bill is rising mainly due to the increased imports of petroleum, wheat, sugar, soybean, machinery, raw material and chemicals, mobile phones, fertilizers, tyres and antibiotics, and vaccines.

Stagnant exports

One of the determinants of Pakistan’s staggering economy is stagnant exports. The obvious explanation is an anti-export bias, incoherent export policy, lack of value-addition, reliance on narrow export base, low labor productivity, and lack of technological innovation which is acting as a barrier between Pakistan’s desires to take off on exports despite trillions given in subsidies to exporters especially the textile industry. Even though a significant volume of relief packages along with 25% slack in electricity bills under the export boosting reform agenda are provided but to little or no avail.

Therefore, if Pakistan wants to transform its economy from a consumption-led one to an export-oriented one, it has to do invest in real development. Rather than becoming elated at some rising figures in export data, Pakistan needs to formulate long-term policy measures so that the export growth becomes sustainable.

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In this respect taking examples from Bangladesh, the Singaporean growth model and the East-Asian tigers are imperative. Furthermore, the government of the day needs to ensure equal treatment to all exporters ranger from large-scale manufacturing ones to small IT firms and freelancers who work for someone outside the country to bring in revenue for product diversification.

Digitalization of economy

With the digitalization of the economy in response to Covid-19 lockdown and social distancing measures, our citizens need to become tech-savvy and erudite concerning evolving technicalities in buying and consumption cycle. All of this has to be followed up by formulating an all-encompassing and cohesive economic policy where education, health, and vocational training are aligned with the export sector.