Inflated Import Invoice – Journal

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PAKISTAN’s trade deficit increased nearly 33 percent to $ 30.8 billion in the last fiscal year, from $ 23.2 billion a year earlier due to strong import growth. The country’s trade gap has widened since December. Imports are on the rise, increasing 26% during the year to $ 56.1 billion from $ 44.6 billion. This was expected due to poor wheat, sugar and cotton harvests last year. Another factor driving imports is the rapid increase in machinery imports due to the availability of long-term, substantially subsidized financing for new investment and replacement of obsolete technology. In addition, the rise in world commodity prices as a result of increased demand as the world drinks towards some kind of normalcy has also contributed to an increase in the import bill. By comparison, the country’s exports grew only 18.2 percent, from $ 11.4 billion to $ 25.3 billion. Even though the country has achieved its highest ever export earnings – the last time Pakistan recouped more than $ 25 billion in export dollars was in 2014 – the performance is not so encouraging. if you look at them in terms of GDP or the size of the economy. The country’s exports remain below 8.5% of GDP, calculated at around $ 296 billion. This compares to Bangladesh’s exports which constitute over 15% of its GDP. Pakistan reached its highest ever export-to-GDP ratio of 12% in 2011 before hitting a low of around 7.5% in 2017.

The growing trade deficit can be a major challenge for the country’s weak external sector. The growing gap between what we buy in the world and what we sell to them has already eroded the current account surplus posted in the first five months of the past fiscal year. The trend is expected to persist in the current fiscal year as the government targets GDP growth of 4.8% or more. Imports are expected to grow even faster during this year, while exports are not expected to keep pace. This risks putting pressure on the State Bank’s meager foreign exchange reserves. Last year, the Covid-19 pandemic provided a cushion to the external account as we saw unprecedented growth in remittances sent by Pakistanis working abroad due to restrictions on international travel, which helped the central bank finance the surge in imports and reduced pressure on the country’s balance of payments position. As the world gets vaccinated and slowly returns to normal, the remittance boom is unlikely to continue for too long, depriving the government of a major source of funding for imports.

So how does the government plan to finance the surge in imports – or the current account deficit – in a world that is learning to live with the coronavirus? Unless it has a plan to boost exports more vigorously and seek out non-debt-generating foreign direct investment, it could see its foreign exchange reserves erode in the short to medium term and foreign debt further increase. faster.

Posted in Dawn, le 5 July 2021

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