The trade deficit of Pakistan that was $2.15 billion in January 2020, amplified by 21%, amounting to $2.6 billion by 2021. This trade deficit is said to have been caused by an increase in imports for the support of agricultural and industrial activities. The imports aimed at growing the overall economic activity in the country.
January 2021 saw an increase of 15% in imports, i.e. $4.12 billion in January 2020 to $4.73 billion in January this year.
Exports also saw a rise in the same month as the imports increased but it was not enough to reduce the deficit. Exports increased by 8% from $1.97 billion last year to $2.13 billion this year.
As reported by the Head of Research, PKIC (Pak-Kuwait Investment Company) the trade deficit might just grow wider. He added that the imports would remain accelerated to revive the local and global economies that have severely been affected by COVID-19.
Imports of commodities like food and machinery is likely to stay high. According to the PKIC representative, the import of machinery was unavoidable. This was to support the new industrial projects and expansion of the present ones under the Temporary Economic Refinance Facility (TERF).
Since March 2020, banks have sanctioned funding worth over Rs300 billion.
In addition, government will continue to import foodstuff like wheat and sugar, to neutralize food prices in the country.
There is also a prediction that exports will drop after February-March.
Yarn, a raw material for textile manufacturing, has become more expensive. Moreover, regional competitions that include Bangladesh and India are reopening.
This may add to a decline in the export of textiles, which are about 60% of the aggregate export earnings of Pakistan.
Accumulatively, the first half of the current fiscal year 2021, saw the trade deficit widen by over 8%, from 13.82 billion to $14.96 billion.
According to the State Bank of Pakistan, the deficit will remain stagnant during the entire fiscal year of 2021.
According to experts, it is imperative for Pakistan to sustain a strong receipt of workers’ remittances in January and onwards. This would ensure that the current trade balance is in surplus and the deficit is minor.
Reportedly, Pakistan has consecutively received over $2 billion a month for the past seven months.
The increase in imports has majorly come from the import of food items such as wheat, sugar and cooking oil and, cotton, fertilizer and automobile.
It is anticipated that in order to regulate food inflation the import of such commodities and goods will see an uptrend. The imports are eventually going to support the export of textile products and the revival of large-scale manufacturing industries.
A substantial growth in exports is the need of the hour to competently and economically manage international payment pressure.
A decline in the trade gap will make the economy sustainable.