ISLAMABAD: Pakistan’s merchandise trade deficit in May increased 134% from a year ago due to lower export earnings and higher than expected imports, showed Wednesday data from the Ministry of Commerce.

The monthly deficit reached $ 3.432 billion in May 2021, up from $ 1.467 billion a year ago, raising concerns that this could create a problem for the government in controlling the external accounts. In terms of rupees, the trade deficit was recorded at 125.2 pc year-on-year.

The trade gap has widened since December 2020. The increase in the trade deficit is mainly due to exponential growth in imports with relatively slow growth in the country’s export earnings.

Between July and May 2021, the trade gap widened by 29.5% to $ 27.275 billion in the 11 months of 2020-2021, from $ 21.065 billion in the corresponding period of the year. last.

While in FY20 the country’s trade deficit had narrowed to $ 23.099 billion from $ 31.820 billion, this target has already been met in the 10 months of FY21. , indicating serious pressure on the external side due to rising imports.

The import bill rose 77.8% to $ 5.090 billion in May 2021, from $ 2.863 billion compared to the corresponding month last year. On a monthly basis, the import bill fell by 3.23 pc.

Between July and May FY21, the import bill rose 22% to $ 49.839 billion this year, from $ 40.866 billion in the corresponding months last year.

The import bill is increasing mainly due to increased imports of petroleum, wheat, sugar, soybeans, machinery, raw materials and chemicals, cell phones, fertilizers, tires, antibiotics and vaccines.

Last month, duty-free imports grew 73.78% and dutiable imports increased 94.84% year-on-year. This clearly shows that the robust growth of duty-free imports is mainly linked to raw materials and semi-finished goods on which duties and taxes were exempted in last year’s budget.

The increase in dutiable imports is due to an increase in regular imports of smuggled items such as tires, textiles and tea. As a result, the collection of customs duties during the month under review also recorded robust growth.

The continued decline in imports during the first two years of the current government had given the government some respite in the management of external accounts despite the downward trend in exports. However, the rebound in imports is likely to create pressure from the external side.

The growth in movement-level remittances will be sufficient to finance the import bill.

However, it is believed that the current account deficit in FY21 will remain in the $ 4 billion to $ 6 billion range by the end of June.

Exports grew 18.7 percent year-on-year to $ 1.657 billion in May 2021, from $ 1.396 billion last year. On a monthly basis, exports fell by 25.3 pc. The month-over-month decline is mainly due to a substantial drop in export earnings in May despite a weaker base in May 2020 which provided a weaker base for higher growth.

In fact, the month-over-month decline is a worrying factor for policymakers.

However, in the 11 months of FY21, export earnings rose 14% to $ 22.563 billion from $ 19.801 billion in the corresponding period last year.

Prime Minister’s Trade Advisor Abdur Razzak Dawood said in a statement that the increase in export earnings was attributed to exporters for maintaining the momentum of the country’s exports in a year marked by contraction and uncertainty in major markets.

Mr Dawood said the drop in exports to less than $ 2 billion was due to the extended Eid holiday, aimed at curbing the spread of Covid.

The value-added sector has already warned the government of a possible shortage of raw materials in the coming months. Stakeholders warned the government that if cotton yarn was not available in the required quantity, pending export orders would eventually be diverted to rival countries. At the last meeting of the Economic Coordination Committee, the government exempted duties and taxes on the importation of cotton yarn.

Posted in Dawn, le 3 June 2021

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