Trade deficit to come down by $4bn in FY08-09: MoF

[LahoreEstate]

* Trade deficit is projected to be $11.3 billion in 2008-09 as compared with $15.3 billion in last fiscal year

Staff Report

ISLAMABAD: By putting in place the restriction on import and protectionist policies by the economic managers, the trade deficit is projected to be $11.3 billion in 2008-09 as compared with $15.3 billion in last fiscal year, according to the Balance of Payment Outlook 2007-08 to 2012-13 of the Ministry of Finance.

Outlook incorporated in PRSP II document reveals that exports of the country are projected to post, a negative 5.5 percent growth with total exports at $19 billion in the current fiscal year 2008-09.

Trade policy 2008-09 had projected taking country’s exports to $22.1 billion, however, revision in macro-economic targets reveals that exports target is to be missed by a big margin of $3.1 billion, in case exports stood at $19 billion by June 30. The outlook further reveals that the country had managed to export goods worth $20.1 billion in 2007-08 and is projected to realise exports to the tune of $19 billion in the current fiscal and it has projected exports at $19.3 billion for 2009-10.

Similarly, after putting in place the measures to slow down the economy, the imports are also projected to register a negative growth of 14.5 percent with total imports at $30.3 billion in current fiscal year 2008-09.

According to the outlook, the macroeconomic framework projects a drastic reduction in the trade gap from $15.3 billion in FY 2007-08 to $11.3 billion in FY 2008-09 that would enable reduction in the current account deficit from $14.0 billion to $9.7 billion in 2008-09 and $7.4 billion in 2009-10.

As a percentage of GDP the current account deficit is projected to decline from 8.4 to 4.2 percent of GDP during this period. The reduction in the trade deficit is mainly on the back of drastic compression of non-essential imports as well as stabilisation of prices of crude and edible oil along with commodity prices.

Exports are expected to grow in the single digit, which is below their long-term average of 14-20 percent in the medium term. With the declining trade deficit, the current account deficit will also fall and thus necessitates external debt reduction from 27.3 percent of GDP in FY 2007-08 to 26.0 percent by the end of the macroeconomic framework period 2012-13.

According to an analysis of the Ministry of Commerce, some of these structural challenges relating to both the demand and supply are Pakistan’s low ranking on the competitiveness scale due to its internal inefficiencies, thus making the cost of doing business in Pakistan relatively higher. Poor governance coupled with excessive red tape results in extra costs for producers and exporters. Power supplies are inadequate and a costly input for producers. Infrastructure especially relating to transportation is substandard resulting in extra costs for exporters. High cost of capital, low reliability of the legal dispute resolution system inhibiting investment and increase in commercial activity. Low productivity of human resource due to lack of education and skills deficit, lack of emphasis on quality in production and service provision and lack of diversification of our export portfolio and over reliance on textiles.

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