Pakistan - News and Discussion -7

[Naresh]

<b>Trade deficit may cross $15b in current fiscal year</b> <!--emo&:flush--><img src='style_emoticons/<#EMO_DIR#>/Flush.gif' border='0' style='vertical-align:middle' alt='Flush.gif' /><!--endemo-->

KARACHI: The country’s trade deficit may cross $15 billion in the current fiscal year as the central bank has predicted that the country’s imports would total $34 billion while exports would total $19 billion for the 2006-07 fiscal year.

Research Head at Invest Capital and Securities Khalid Iqbal Siddiqui said: “In the wake of the huge trade deficit that the country is facing right now, we feel that there is a need to correct the imbalance prevailing in the economy.”

Two weeks ago, the State Bank took steps to boost the country’s exports by reducing the export finance rate to 7.5 percent from 9 percent.

“The recent measures taken by the State Bank will encourage exporters, but it will take time for the measures to produce results as the additional capacity is going to be built and then output will be received and exported,” Mr Siddiqui said.

According to trade figures, the import of textile machinery (which produces Pakistan’s major manufactured exports) is only 3 percent of the total $28.5 billion import bill. The analyst said there would be pressure on the balance of payments as imports continue to rise. These steps will ultimately have to focus on the promotion of exports and the curbing of imports.

Petroleum group: Imports under the petroleum category grew by 67 percent from $3.99 billion to $6.66 billion during 2005-06. The increase in the petroleum import bill represented $2.66 billion, or 33 percent of our incremental import bill.

The reason for this increase was not only high oil prices, but also the higher quantity of oil imported, especially during the latter half of the fiscal year. The analyst said more oil was needed to fulfill the energy needs of the country because of lower rainfalls last year. Lack of hydropower resulted in the higher use of thermal power plants, which contributed to the increase in the oil import bill.

Agriculture and Other Chemicals: The fertiliser deficit continued to widen as imports under this group grew by 14 percent from $3.6 billion to $4.1 billion. Manufactured fertiliser is one of the key contributors to the increase in agri imports.

Fertiliser: Fertiliser imports grew by 54 percent from $417 million to $643 million. These imports were due to a shortage of fertiliser in the country, which is due to aggressive lending to the agri sector. Imports of insecticides fell by 18 percent from $140 million to $115 million during the last fiscal year.

Metals group: The growth in the metals group shows that the economy’s fundamentals are improving as the consumption of steel is the barometer for industrialization in any economy, but the case in Pakistan is slightly different.

Imports in the metals group soared as Pakistan Steel Mills developed a technical fault, and therefore steel had to be imported for normal consumption, as well as for the earthquake-affected areas.

Also the increase in the prices of steel contributed towards the higher import bill for the metals group. Imports under this group grew by 48 percent from $1.2bn to $1.8bn. The incremental amount of $0.58bn, or 7 percent of the increase in our import bill, could have been averted had Pakistan Steel Mills been functioning properly.

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