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Historic deficit dwarfs record exports in November

Imports grew 72% in 5MFY22

SAMAA | - Posted: Dec 2, 2021 | Last Updated: 2 months ago
Posted: Dec 2, 2021 | Last Updated: 2 months ago

On the economic front, Pakistan finally had a reason to celebrate in November. Its exports grew by 27 percent in the first five months of current fiscal year (July-November). But the celebrations dampened when numbers showed that imports grew by 72% during the same period. As a result, the trade deficit ballooned to $20.74b. 

In the month of November, the deficit stood at $5.10b. This is the highest trade deficit recorded in a single month. 

The situation has put the government in such awkward position that the Adviser to Prime Minister of Pakistan for Commerce and Investment Abdul Razak Dawood, on Wednesday, only tweeted the export data for November. 

According to Dawood, the exports in November stood at $2.9b against the target of $2.6b. 

About the import data, he said “it is being analysed and will be shared shortly”. 

Analysis of data revealed that in the first five months of current fiscal year, Pakistan exported goods $12.36b worth, while imported items $33.11b worth. 

The trade deficit stood at $20.74b. It was $9.54b above the corresponding months last year. 

The year-on-year increase in the quantum of export was 27%, while that of imports was 71.59%. 

Economic impact 

The historic trade deficit in November hemorrhaged the Pakistan Stock Market which shed 1900 points Thursday. 

Analyst Raza Jafri said that the panic was caused in part by news of a record trade deficit in November. 

The antsy investors rushed to take out their money as they are expecting further belt tightening. 

According to reports, the State Bank of Pakistan (SBP) is expected to announce the next monetary policy December 14. The analysts are foreseeing another hike in policy interest rate by 1% or 100 basis points in an attempt to control inflation. 

Last month, the central bank raised the interest rate by 150 basis points to 8.75%. The meeting which was rescheduled from November 26 to November 19 shocked experts who were expecting a maximum raise by 100 basis points. 

Trade deficit pattern

The trade deficit has been continuously rising since the start of this fiscal year in July. The PTI-led government did manage to reverse this trend in the last fiscal year, but it once again ballooned due to exponential growth in imports. 

In the FY18, the deficit reached an all-time high of $37.7b. But,  government's measures brought it down to $31.8b and $23.18b in FY19 and FY20 respectively. In FY21, it again rose to $30.79b. 

The growth in imports allowed government some respite as the Federal Board of Revenue (FBR) collected 35 percent more revenue from sales tax, withholding tax and customs duty in November 2021 as compared to November 2020. 

Measures to curb imports 

The government has implemented several measures in the past few months to curb imports. The SBP imposed 100 percent Cash Margin Requirements (CMR) on 114 items in October. 

Cash margin is the money importers have to deposit with their banks to initiating an import transaction, such as opening a letter of credit (LC). Raising the cash margin requirement increases the cost of imports. 

In September, the central bank tightened conditions for car loans, personal loans and credit card loans to control the demand and reduce inflation. 

SBP raised the down payment for a car loan to 30 percent from 15 percent. The maximum tenure of auto finance was reduced from seven to five years. 

This step came after on the back of strong demands for vehicles which was putting pressure in the current account. The commercial banks issued a record number of car loans worth Rs360b in August.

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pakistan stock exchange, current account deficit, economy of pakistan

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