The global economy is confronting with slower economic growth and high inflationary pressures due to the Russia-Ukraine conflict and subsequent supply chain disruptions. Moreover, political instability has triggered the economic situation of the country and it experienced a rollercoaster of events. However, it is worth noting that imposition of ban on imports led to a decline in trade deficit of Pakistan by 18 percent in July 2022, according to the Pakistan Bureau of Statistics (PBS).
Similarly, import bill of the country fell by 13 percent to $4.86 billion in July 2022 as compared with $5.57 billion in the same month of the last year.
Trade and macro-economist at the World Bank Gonzalo Varela, on twitter shared his analysis by decoding latest trade performance data for the fiscal year 2021-22 by the State Bank of Pakistan (SBP).
— Gonzalo Varela (@gonwei) August 4, 2022
Instead of measuring the trade performance in terms of volume, he analyzed the same in terms of value. Before sharing his results, he highlighted, “Keep in mind FY22 was extraordinary in terms of high prices both for imports and exports.”
In FY 2022, total exports reached record high after witnessing an increase of 26.6 percent and 17.1 percent in export of goods and services respectively. The growth in export value is owed to the increase in export prices and a good export response by the international market as well as the local industries.
In the past couple of years, particularly the PTI government rolled out policies to incentivize exports in order to tackle the trade and current account deficit. These policies seem to have borne fruit.
He pointed out that the two largest export destinations of Pakistan; US and China witnessed a significant increase in shipments.
Gonzalo explained that the driving force behind exports of goods was the textile and garments industry of Pakistan which witnessed an increase of $4 billion to reach $18 billion in FY 2022. Moreover, exports of vegetable products also increased, whereas live animals saw a decrease in exports.
Despite the fact that textile industry is a serious victim of energy crisis in the country, the sector witnessed robust exports that reached $19.3 billion in financial year 2021-22, showing 26 percent surge over previous year, according to the PBS.
“The textile sector provides a major cushion against the deteriorating economic climate since its exports account for around 60 percent of Pakistan’s total export volume,” said Aba Ali Habib Securities analyst Ali Asif.
On the other side, he mentioned about a notable increase in export of transport services. Meanwhile, knowledge intensive services such as business services, telecom sector, IT sector also progressed on a positive trajectory.
In addition, throughout the eleven months of the fiscal year 2021–22, Pakistan made US $2,380.852m by offering various information technology (IT) services in different nations.
As far as export of transport services is concerned, it is true that Pakistan earned $737.720 million by providing different transport services in various countries during the eleven months of fiscal year (2021-22) as compared to the corresponding period last year.
Furthermore, the analyst highlighted, while exports of the country reached an all-time high, imports also saw a significant increase. The increase in imports value is largely contributed by the extraordinarily high prices of food and energy. The Russian invasion of Ukraine is to be blamed for this global inflation.
He added that imports grew faster than exports; while the exports increased by 25 percent, imports increased by 34 percent, hence the trade deficit also increased significantly to touch record levels. Due to the widening of trade deficit, external vulnerability of Pakistan increased, currency value depreciated, and inflation spiraled out of control.
Gonzalo stated that the import of goods from top 8 origins grew significantly in FY 2022 as compared to FY 2021. Imports of fuel played the major role in overall increase in imports. Global prices of crude oil and edible oil touched the highest levels as were witnessed during the 2008 peak.
However, rapidly increasing fuel prices is the problem of the whole world and more challenging in case of Pakistan due to stringent conditions of the global lender for the revival of IMF bailout programme.
Gonzalo Varela drew some important conclusions at the end of his analysis stating that the structural reforms are needed to boost export competitiveness. He emphasized that growth in exports even with potentially lower export prices is important for the economy of Pakistan.