Pakistan’s trade deficit increased--for the second consecutive month--to $4.05 billion in August, registering around 133 percent increase in comparison to July, as imports grew by almost three times than that of exports, showed the data released by the government. Officials, however, said raw materials needed for factories and capital goods are behind the surge. 

In merchandise trade--which accounts for the country’s most exports-- recorded a whopping deficit of $4 billion against $1.74 billion it recorded in July. Officials believe that increase in remittances, growth in export proceeds, and Roshan Digital Account will help mitigate the pressure to a large extent, reported Dawn newspaper. 

Managing the widening gap through remittances and other means though will have its own limitation and may not match the pace of the exponential rise for long. 

In July, the first month of the current fiscal, the country recorded a $3 billion deficit, for the same reason: the exponential rise in imports. In the last fiscal, FY21, which ended in June, it recorded around $30 billion trade deficit, an increase of almost 32 percent from a year ago. 

Pakistani officials often justify this surge--at least from December last year-- in imports, saying it is because of raw materials which would pay off later. However, had it been the case, the gap should have come down in the last few months. 

For three consecutive years, from FY18 to FY 20, the trade deficit was on the decline. It touched an all-time high of $37.7 billion in FY18, $31.8 billion in FY19, and $23.183bn in FY20. However since December last year, the import grew significantly while the growth in exports couldn’t match that. And in FY21, it recorded $30.796 billion. 

If the deficit continues to grow with the current pace, the country may record its highest ever trade deficit this year.  

The import bill surged to $56.091 billion in FY21 from $44.574 billion the previous year, recording a 25.8 percent growth. Significantly, the record growth in remittances, which crossed $25 billion last fiscal--the highest ever,  supports the country to finance its import bill. 

Furthermore, there is a sword hanging on the country’s GSP plus status in the EU market, which provides almost tariff-free access to most of Pakistan’s export to the EU market. In April, the EU parliament passed a resolution, calling for suspending the GSP plus status for Pakistan, citing the blatant misuse of the country’s blasphemous laws. 

Pakistan’s textile sector has been most benefited from it. The loss of the status could cause a direct loss of $4 billion in exports and may also herald the collapse of the industry which creates thousands of jobs. The sector accounts for a quarter of the country’s total exports. 

(SAM)