Pakistan’s trade deficit has been reduced by one-third to $21.3 billion in the first eight months of the current fiscal year, primarily due to a slowdown in imports. As a result, the country’s economic situation remains precarious, as exports continue to decline and foreign loans are hard to come by.
According to a report released on Wednesday by the Pakistan Bureau of Statistics (PBS), the difference between imports and exports has narrowed by $10.6 billion, or 33.2%, since the same time last year.
Administrative limitations are to blame for this transient phenomenon, and the decline in exports is concerning. Over the period of July to February, exports decreased by $1.8 billion, or 8.7%, to $18.8 billion. As a result, it is unlikely that the nearly $38 billion annual export target will be met.
Imports fell by $12.4 billion, or one-fourth, to $40 billion during the same time period. However, administrative controls that posed obstacles for banks and prevented them from clearing letters of credit were largely to blame for this decline (LC).
Pakistan has already been requested by the IMF to revoke these directives to the banks. In contrast to earlier projections of $65.5 billion, the government has informed the IMF that imports may stay between $55.5 billion and $57.5 billion. This decrease will counteract the effects of a $13.5 billion decrease in non-debt creating inflows.
Foreign creditors provided only $6 billion in loans during the first seven months (July-January), or just 27% of the estimated $22.6 billion in loans for the entire year. The nation’s foreign exchange reserves are currently at less than $4 billion, a dangerously low level, due to the lower-than-expected inflows. To stabilise the reserves, China is anticipated to add three additional loan tranches totaling $1.3 billion this month.
Only $3.4 billion in loans from multilateral creditors were made over the past seven months, or 45% of the annual goal. The World Bank contributed $750 million, the Asian Infrastructure Investment Bank (AIIB) distributed $536 million, and the Asian Development Bank (ADB) released $1.9 billion.
The majority of the $792 million in payments made by bilateral creditors came from Saudi Arabia, which released $690 million against the oil on deferred payments facility. The IMF disbursements stood at $1.2 billion, while commercial loan disbursements remained at a meagre $200 million.
In February, imports decreased by almost 32% while exports decreased by 19% year over year. As imports fell by 18% while exports barely increased by 2.7%, the monthly trade deficit decreased by 35%. To maintain its economy, Pakistan must put more effort into increasing exports and obtaining foreign loans rather than simply reducing the trade deficit.
