By Irfan Ahmed ISLAMABAD, March 16 (INP-WealthPK): Pakistan's trade imbalance has reduced significantly, indicating a favorable outlook for the foreign sector. This is due to the fact that exports are increasing at an exponential rate in comparison with imports, which increased in February compared to January, reports INP-WealthPk. According to the Pakistan Bureau of Statistics (PBS), trade deficit shrank 9.69% month-on-month to $3.095 billion in February 2022 as against $3.427 billion in the previous month (January 2022). Imports fell by 2.28% in February 2022 to $5.903 billion from $6.041 in January 2022. Furthermore, exports were up by 7.42% in February 2022 to $2.808 billion from $2.614 billion in January 2022. Adviser to the PM on Commerce and Investment Abdul Razak Dawood said exports increased at the rate of $100 million/day which was the fastest for any month. Source: PBS website/WealthPk researchHowever, trade deficit widened by 20.19% year-on-year in February 2022 climbing to $3.095 billion up from $2.533 billion in February 2021. This is because imports registered an increase of 28.30% on a year-on-year basis and jumped from $4.601 billion to $5.903 billion. Exports witnessed an increase of 35.78% to $2.808 billion in February 2022 from $2.068 billion in the same period of last year. According to experts, a surge was also noted in the import of vehicles, machinery, and vaccines. The government is also importing wheat and sugar and costly palm oil, reports WealthPk. Exports increased by 25.88% and remained $20.547 billion in the first eight months (July-February) of the fiscal year 2021-22 compared to $16.323 billion during the same period of 2020-21. Imports climbed by 55.08% in the first eight months of the current fiscal year (July-February), reaching $52.506 billion, up from $33.858 billion in the same period the previous year. Trade deficit was $31.959 billion from July-February FY2021-22 compared to $17.535 billion in the same period of FY2020-21. [caption id="attachment_64879" align="aligncenter" width="696"] Source: PBS website/WealthPk research[/caption] According to WealthPk, if the trade deficit is reduced at the same rate, the country will have the highest ever exports of $30 billion by the end of the current fiscal year 2021-22. While a trade deficit is not inherently bad or good, it can have different effects, depending on the economy. In Pakistan’s context, the simplest cost will be increasingly higher costs of imported goods for consumers while domestic workers also earn less due to a weakened rupee. Depreciation of rupee can be welcome in the global economic context but not over a longer term. In contrast to the government's initial projections, the higher annual deficit will result in additional foreign borrowing. The following are the ways to further shrink the trade deficit. The government must ban import of cars and increase Regulatory Duty (RDs) and Additional Customs Duty on different luxury items in order to reduce the import bill. The government needs to depreciate the exchange rate. A weaker dollar makes imports more expensive and exports cheaper and improves trade balance. The production capacity of the country needs to be increased to counter trade deficit. Increased quality and cheap production lead to more increase in exports. The government should also create and implement a long-term plan for increasing a firm’s productivity that encourages competition, innovation, and optimizes export potential. The government should provide long-term loans to exporters and consolidate market intelligence services by supporting new exporters and evaluating the impact of current interventions to increase their effectiveness. The ease of doing business must be prioritized to encourage innovation for offering diverse products and services with higher quality.