Businessmen Panel warns of higher trade deficit

LAHORE: Federation of Pakistan Chambers of Commerce and Industry’s (FPCCI) Businessmen Panel chairman Mian Anjum Nisar has warned of a much higher trade deficit during the current fiscal year, compared with the targeted deficit of $28.4 billion fixed by the government, a statement said on Saturday.

Nisar said that the country’s July-August trade deficit has widened 120 per cent to $7.5 billion after imports witnessed a new historic peak, with exports growth not matching the pace, despite a huge depreciation in the rupee value against the dollar.

“Our exports are around $2 billion/month and the trend continues, despite around 40 per cent currency depreciation during the last three years. Rising imports will not only increase the external borrowing requirements but also dent the foreign exchange reserves.”

“The exports are not matching the pace of imports, while the foreign remittances, which are [an] important source of debt-free financing, are expected to grow in a single-digit,” he added.

The FPCCI former president said the previous current account surplus was due to sustained increase in remittances and a smaller trade deficit.

“To achieve consistency in that trend for a long period without compromising on the industrial growth, the government will have to focus on increasing the exports further and put the business and trade issues on priority,” he said, adding that the government had already missed its annual exports target, requiring at least 6 per cent growth.

The current export portfolio is marred by a lack of diversification, as a few products are exported to limited markets. “So, a major enhancement in exports requires huge and wide structural reforms”, he said, adding that the government has failed to attract foreign investment due to lengthy process of approval of projects.

The external trade projections figures had already become irrelevant within two months, showing weakening capacity of the central bank, Planning and Development and the Commerce Ministry, he said.

Nisar suggested the economic managers check the increase in the imports of non-essential items, as the government might face a challenge of an unmanageable current account deficit because of a projected record of $70 billion imports this fiscal year.

The exports had peaked to $2.73 billion in June, then dropped to $2.34 billion in July and finally further slipped to $2.32 billion in August, he said, adding that the imports last month hit a record high of $6.5 billion, which were 95 per cent higher, leading to widen the yearly trade deficit to $4.2 billion in August.

He suggested removal of the bureaucratic hurdles, lowering import duty on smuggling-prone items, increasing share of direct taxes in revenue and decreasing slab of indirect taxes to achieve the key economic targets set for the year 2021/22.

Nisar said that a quick turnaround can come from increasing competitiveness of the existing export base and demand-led production of agricultural products, especially high-value agriculture products.

The long-term strategy needs structural reforms of the entire export sector, including high-tech and innovative products, value-added exports commodities and market diversification towards unexplored markets.