By Ayesha Mudassar

ISLAMABAD, July 27: Pakistan is facing a widening trade deficit due to an all-time high oil prices in the global market, a massive growth in imports and a weakening local currency.

Concrete steps are required to curb the country's fattening import bill and push up exports.

Dr Khalid Mehmood, a senior research economist at the Pakistan Institute of Development Economics (PIDE), told WealthPK that there was an urgent need to adopt an aggressive yet selective import compression policy. He said that imposing a ban on import of non-essential goods to preserve the country's foreign exchange reserves was a good step to start with.

He said that the cost of doing business in Pakistan had increased significantly on the back of galloping oil, gas and electricity prices, squeezing investment and economic growth.

According to the data released by the Pakistan Bureau of Statistics (PBS), the trade deficit jumped to $48.38 billion in the fiscal year 2021-22 (FY22) from $31.07 billion during the FY21, showing an increase of 17.2%. This figure exceeded by a wide margin the annual trade deficit target of $28.4 billion in just the first seventh months of FY22, as imports were significantly higher than expected.

Imports in FY22 increased by 42.21% to $80.17 billion.­ The government had set the yearly import target at $55.2 billion, which was easily breached in the first nine months of FY22.

Exports climbed nearly 25.6% in FY22 and stood at $31.79 billion against $25.3 billion during the previous fiscal year. The trade deficit in June 2022 rose 36.9% to $4.96 billion compared to June 2021, according to the PBS's monthly data on foreign trade statistics.

The widening current account deficit is eroding foreign exchange reserves of the central bank.

According to the figures released by the State Bank, Pakistan’s foreign investment fell year-on-year by 61% in 2021-22. Pakistan urgently requires dollar inflows to restore confidence of investors, otherwise the country risks entering a major external account crisis. There is a need to concentrate on export diversification, revival of sick industrial units and expansion in the import-substitution industries.

Credits: INP-WealthPk