Pakistan saved $8.6 billion as trade loss shrank 27% in the fiscal year that ended June 30, according to the Pakistan Bureau of Statistics data released Friday.
Imports fell to their lowest level in nine years after Pakistan raised duties and adopted measures to curb spending. It reduced the current account deficit – the loss of foreign exchange as recorded in the country’s dollar account with the rest of the world – by more than 73% in the first nine months of the year.
However, that wasn’t enough to change our import-to-export ratio. Pakistan still spends more than two dollars for every dollar earned. It was the same last year.
In the latest fiscal year, Pakistan exported goods worth $21.3 billion compared to imports of $44.6 billion, leaving it with a deficit of $23 billion.
The trade deficit means we are paying more on goods and services we are buying from the world than what we are earning by selling our products and services to them. The latest data shows a drop of $10 billion in our annual imports but global demand suppression triggered by the coronavirus pandemic in the last quarter pushed exports down by 6.84% or $1.5 billion, compared to fiscal year 2019.
The balance of trade or the difference between our imports and exports is a significant part of our current account. A large trade deficit tends to expand the current account deficit, which is an important gauge to measure an economy’s health.
Reducing the current account deficit was the PTI government’s biggest challenge since it came to power in August 2018. Within its first six months, the government saw the dollar reserves fall to 6 billion, barely enough to pay for two months of imports. With fewer dollars to import and pay back foreign loans, we nearly defaulted in 2019. Depleting dollar reserves eventually devalues local currency, as evident from the dollar’s appreciation against the rupee last year.
To tackle this challenge, PM Khan’s government signed a $6 billion bailout with the International Monetary Fund. Going to the IMF helped us avert a default but came with painful economic reforms. The government had to choke the (import-led) economic growth.
To reduce the current account deficit, the PTI government tried to reduce imports, using measures such as higher duties on a range of items. The dollar reserves were doubled from its lowest point in 2018 to $12 billion this year. The dollar account turned into a surplus in October last year but slipped back into the deficit. It turned into a surplus again in May.
We are in this situation because we import more and export less. By contrast, countries that have export-oriented local industries are better off. On one side, they earn dollars and shore up their foreign exchange reserves to a comfortable level, while on the other they create enough jobs to keep the unemployment rate under control. In the long term, such countries tend to be economically prosperous than the likes of Pakistan that are unable to increase exports.