OpEd: Pakistan's Trade Deficit Decreases, Will It Decline Further?

OpEd: Pakistan’s Trade Deficit Decreases, Will It Decline Further?

pakistan trade deficit decline

There’s no doubt that Pakistan has seen tremendous economic turmoil in the Yester months, however, the situation is getting better. Pakistan has witnessed a decline in the trade deficit.

According to the Pakistan Bureau of Statistics, the trade deficit fell by 26.5 percent, standing at $15.77 billion. However, in the last 8 months of the ongoing fiscal year, the trade deficit stood at $21.46bn.

pakistan trade deficit decline

Source: Urdu point

The drop came largely due to a double-digit slump in imports. Pakistan took curative steps to decrease stresses on foreign exchange reserves.

Monthly, the deficit dropped from $2.26bn to 14.6pc to $1.9bn. Moreover, the commerce ministry expects the annual trade deficit to shrink by around $12bn to $19bn in the continuing financial year from $31bn during the last monetary year.

In the first eight months of the current fiscal year, imports were at $31.42bn, dropping by 14.06pc from $36.56bn during the same period last year, the data revealed. The slump in the price of shipped goods was 1.71pc to $4.07bn against $4.14bn last year.

What is a trade deficit!

A trade deficit is a term, which implies, the cost of imports exceeding the cost of exports. The trade deficit is also known as a negative balance of trade. To calculate the trade deficit, one needs to subtract the value of a country’s exports from the total value of imports.

In Pakistan, the export surged up to $2.14bn from $1.88bn since last year, exhibiting an appreciation of 13.82pc. From July 2019 to February 2020, the export increased to 3.65 percent.

Why Does Trade Deficit matters?

If the trade deficit persists a long time, it can create a brain drain. Besides, the trade deficit decreases foreign exchanged reserves. Moreover, the trade deficit can lead to inflation and unemployment swiftly. When a country imports more commodities than it purchases domestically; reciprocally, the country may produce fewer jobs in particular industries.

pakistan trade deficit decline

Source: Arab new pk

In the case of Pakistan, the country is facing a trade deficit for decades. The deteriorated saga of democracy along with persistent political instability is one of the causes of the trade deficit in the country. Furthermore, Pakistan in the 60’s observed privatization period and in Bhutto’s era, the country witnessed nationalization. Thereafter, Pakistan is a blend of both.

Furthermore, the energy crisis along with extremism and terrorism led to the deindustrialization of the country, leading to more exports. Consequently, the trade deficit soared in the country.

Will Pakistan see a further decline in trade deficit?

Recently, Pakistan saw a decline in the inflation rate. Currently, the International Monetary Fund (IMF) in directing the economic policies of Pakistan. In the long run, Pakistan needs drastic measures to decline the deficit.

In order to shrink the deficit, Pakistan needs rapid industrialization and tackling the energy crisis. PM Imran Khan should encourage domestic industries rather than imposing heavy taxes on them as it can lead to further shrinking of trade deficit.

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