Pakistani imports grow after two years

Pakistan Bureau of Statistics (PBS) reported on Wednesday that trade deficit – the gap between imports and exports – widened 35% in December compared to the same month of last year, Azernews reports Tribune.

The key reason behind the jump in deficit was $5.3 billion worth of imports – the highest since December 2022. It was for the first time in two years the authorities allowed imports to cross $5 billion. There was a $650 million, or 14%, increase in imports last month.

Import restrictions, mostly informal, have been in place for the past almost three years due to external sector challenges. The government has managed to bring the current account deficit under control on the back of compressed imports and some increase in the formal non-debt creating inflows. Imports have been controlled around $4.5 billion a month due to less availability of foreign exchange and the central bank's policy to buy dollars from the market to build its reserves.

Exports continued their upward movement and remained above $2.8 billion in December. However, the growth in exports remained stagnant last month on a yearly basis.

There has been a healthy momentum in exports and remittances from overseas Pakistanis during the current fiscal year – the two most critical non-debt creating sources of foreign inflows. This provides an additional cushion of at least $600 million per month to the government.

But this has been achieved by keeping the dollar price high at Rs278, which Deputy Prime Minister Ishaq Dar believes is overvalued by at least Rs40 per dollar. He has estimated the parity at around Rs235-240. The gross official foreign exchange reserves remained below $12 billion, also below the minimum threshold that can provide three months of import cover.

During the first half (July-December) of the current fiscal year, imports grew over 6%, or $1.6 billion. Imports stood at $27.7 billion in six months.

Compared to that, six-month exports amounted to $16.6 billion, up $1.6 billion, or 10.5%. In the last fiscal year, rice exports had significantly contributed to Pakistan's total exports. But India has now lifted the ban on its rice exports. Trade deficit during the first half remained manageable at $11.2 billion. On a month-on-month basis, the PBS data showed that trade deficit increased 47% in December to $2.4 billion.

Exports amounted to $2.8 billion last month, higher by $8 million. But imports jumped to $5.3 billion, an increase of 17.5%.

Prime Minister Shehbaz Sharif has launched the National Economic Transformation Plan this week after postponing it three times. The plan aims to increase exports related to information technology and freelancing services by $5 billion by 2029 – a goal that clashes with the current IT policies. IT exports are part of the broader plan to boost overall exports to $60 billion in five years. Achieving this requires a VPN-free, unrestricted social media environment.

Under the goal of e-Pakistan, the plan targets the production of 75,000 IT graduates annually, expansion of cellphone users to 192 million and increase in broadband subscriptions to 135 million.

It also includes the creation of over 250 higher education-recognised universities, a 178% increase in IT exports and the establishment of more than 100 software technology parks.

One of the ambitious goals is to have at least one Pakistani unicorn company with $1 billion market valuation. Currently, no Pakistani company earns $1 billion from exports.

In 2023, the highest export value of any company was less than $550 million, achieved in the textile sector.