ISLAMABAD: Pakistan’s trade deficit widened by 20.84 per cent to $2.597 billion in January from $2.149bn over the same month last year mainly on account of surging duty-free imports, official data showed on Friday.

The trade deficit swelled for the second consecutive month suggesting that consumption is reviving. An increase in export could mean recovering global economy and improvement in domestic production.

During the first seven months (July-January) of FY21 the trade deficit increased 8.24pc to $14.96bn from $13.82bn in the corresponding period last year.

Earlier, the country’s trade deficit during FY20 had narrowed to $23.099bn from $31.820bn.

Official data available with Dawn showed the country’s imports have been rising since September 2020. The duty-free import value recorded an unprecedented growth of 80pc in December while it grew by 30pc in January.

Industrial activities booming as duty-free imports surge

In the July-January period of 2020-21, the duty-free imports witnessed an increase of 27pc in terms of dollars over the last year. In overall imports, the share of duty-free import has surged 42pc in the seven months this year from 35pc over the same period last year.

As a result of the increase in duty-free imports, in January, the import bill rose by 14.68pc year-on-year to $4.725bn as against $4.120bn over the corresponding month last year. Meanwhile, on a month-on-month basis, imports in January dipped by 5.59pc compared to December.

During 7MFY21, the overall import bill increased by 6.89pc to $29.198bn, up from $27.315bn over the corresponding period last year.

In FY20, the import bill witnessed a steep decline of $10.29bn, or 18.78pc, to $44.509bn, compared to $54.799bn in the previous year.

The continuous decline in imports in the last two years had provided some breathing space to the government in managing external accounts despite a downward trend in exports. However, rebounding imports are likely to create pressures on the external side.

Industrial growth

The Federal Board of Revenue (FBR) analysis shows the rise in duty-free import value is mainly due to multiple exemptions introduced in the current fiscal year to provide relief to the general public and continuation of a more rationalised cascading tariff structure.

According to FBR, a 29pc increase in the duty-free imports was noted in the import value of those items which covered under various exemption schemes/regimes meant for the facilitation of the export sector including DTRE scheme, manufacturing bonds scheme, export processing zone, etc, which is an indicator of industrial growth.

In value terms, the industrial input items imported during the period reached Rs323bn in the first seven months of the current fiscal year up by 43.55pc, or Rs98bn, from Rs225bn over the corresponding months of last year.

This clearly shows that growth in industrial input item is the outcome of concessions and exemptions to facilitate the export-oriented units and export processing zones. It also indicates that industrial activities are getting impetus after experiencing shocks of Covid-19.

The total export value in various exemption regimes was recorded at Rs987bn in the first seven months this year as against Rs825bn over the last year, indicating growth of 13pc.

Furthermore, the downstream industry input imports also posted growth in the first seven months of FY21 from a year ago — 225pc growth in cotton sector, 15pc in iron and steel sector, 28pc in man-made fibre, 41pc in animal/vegetable fats, 21pc in plastic sector, 97pc in rubber and article sector, and 12pc in machinery. These entire sectors indicate that downstream industry will contribute toward national economy in the coming months.

Trends in exports

Exports in January reached $2.128bn, up by 7.96pc to $1.971bn over the last year.

In 7MFY21, export proceeds rose 5.5pc to $14.238bn as against $13.495bn over corresponding period last year.

An official statement of the commerce ministry said the exports of jerseys and cardigans in January increased by 72pc from a year ago followed by pharmaceutical by 55pc, T-shirts by 43pc, plastics by 24pc, women’s garments by 21pc, home textiles by 19pc, textile made-ups by 11pc, men’s garments by 8pc and rice by 7pc, respectively.

A decreasing trend was noted in the export of mostly non-value-added products -- maize exports decreased by 82pc, raw leather by 23pc, cotton yarn by 11pc, cotton fabric by 14pc and meat by 5pc.

In January exports to Canada increased 43pc, Australia 42pc, the US 36pc, South Africa 27pc, China 21pc, the UK 21pc, Belgium 18pc, and Saudi Arabia 14pc.

Published in Dawn, February 6th, 2021