Trade deficit falls sharply by 38pc in July-August – Newspaper

ISLAMABAD: The country's trade deficit fell by almost 38 percent in the first two months of the current fiscal year, largely driven by a decrease in imports of non-essential luxury items.

The steady decline in the trade deficit shows that the government's battle against the inflated trade deficit is finally bearing fruit, as imports have plummeted despite the miserable growth in export earnings.

Provisional trade figures available with Sunrise showed that the trade deficit fell to $ 3,973 billion in July-August from $ 6.37 billion in the corresponding months of last year, reflecting a decrease of 37.62pc.

On a monthly basis, the trade deficit slowed by a considerable margin of 42.25pc to $ 1.848bn in August compared to $ 3.20bn during the corresponding month last year. The government has set a goal to reduce the annual trade gap to $ 27.476 billion by June 2020.

During the last fiscal year, the country's trade deficit was reduced to $ 31.82 billion, registering a decrease of 15.33 percent. The decrease came as a result of government interventions to stop the increase in the import bill despite the fact that export earnings registered a mixed trend during the same period.

Exports remain stagnant in the first two months of 2019-20

Provisional figures show that imports in July and August registered $ 7.659 billion, 21.74 percent less than $ 9.787 billion during the corresponding period last year.

The decrease is significantly more pronounced since the value of imported goods in August fell 26.9 percent to $ 3.64 billion compared to $ 4.98 billion during the corresponding month last year.

Imports have remained well above the $ 3 billion mark since October 2016 and have steadily increased during the period that reached a maximum of $ 5.8 billion in May 2018. The current government has taken several measures to reduce the increase in the import bill since it came to power in August 2018.

Due to these policies, the value of taxable imports fell to $ 4.4 billion in July-August compared to $ 6.8 billion in the corresponding months of last year, showing a decrease of 35.3 percent. The decrease in taxable imports is mainly due to the imposition of regulatory duties on luxury goods and automobiles.

In addition, the government also imposed prohibited oil imports in furnaces last year, in addition to a series of political interventions that include a better energy supply, an impulse for import substitution, economic stabilization and currency devaluation.

On the other hand, duty-free imports – machinery and raw materials – grew 6.89pc to $ 3 billion in July-August compared to $ 2.9 billion during the corresponding months of last year. The growth is due to the government's decision to exempt the maximum raw materials from the tax in the last budget and facilitate imports related to machinery to promote economic activities in the country.

According to a customs official, the import bill could have declined further if the government had not waived import taxes on 1,639 raw materials in the last budget.

He said the increase in imports of raw materials and machinery will probably accelerate industrial growth in the country. "We expect the tax exemption on raw materials and machinery to boost economic activities in the current fiscal year," the official expected.

In addition, the country's merchandise exports grew 8{7be40b84a6a43fc4fae13304fce9a2695859798abfc41afd127b9f8b21c5f9c5} to $ 3.686 billion in July and August, from $ 3.41 billion during the same period last year. The numbers are enormously discouraging, since exports, which should have grown in recent months due to the depreciation of multiple currencies, have not been able to recover.

The growth of export earnings during July was encouraging, as it grew 15.65 percent annually. However, exports during August grew by a small 1.12pc to $ 1,792bn compared to $ 1,772bn during the corresponding month last year.

Exports accumulated during the current fiscal year are likely to reach $ 26,187 billion, compared to $ 24,656 billion in fiscal year 19. The government has already reduced the cost of raw materials and semi-finished products used in exportable products by exempting them from all customs duties.

Posted on Dawn, September 13, 2019