Amir Khan

Pakistan's trade deficit with the neighbouring countries increased significantly during the first month of the current fiscal year, according to the data from the State Bank of Pakistan (SBP). The deficit expanded by 68.72%, reaching $1.041 billion in July 2024, compared to $0.617 billion in the same month last year. This substantial increase has raised concerns among economic experts and policymakers. The sharp increase in the trade deficit is largely attributed to a surge in imports, particularly from China and India. The data indicates that despite efforts to control the deficit, the rise in imports has outpaced the export growth, leading to an imbalance. Moreover, imports from China rose significantly by 53.63%, amounting to $1.478 billion in July 2024, up from $0.962 billion in July 2023. This trend is consistent with the overall increase in imports from China throughout the Fiscal Year 2023-24 (FY24), where they totalled $13.506 billion, marking a 39.78% rise from the $9.662 billion recorded in the previous fiscal year.

Similarly, imports from India saw a modest increase of 0.56% to $17.75 million in July 2024 compared to $17.65 million in the same period last year. However, this represents a significant jump on an annual basis, with imports from India rising by 8.866% in FY24 to $206.89 million, compared to $190.04 million in the previous year. Despite the increase in the trade deficit, Pakistan's exports to several neighbouring countries also showed a positive growth. Exports to China rose by 5.77% in July 2024, reaching $160.10 million, up from $151.36 million in the same month of the previous year. For the full fiscal year FY24, exports to China increased by 33.68%, totalling $2.707 billion compared to $2.025 billion last year. In addition, exports to Afghanistan rose by 108% to $88.06 million in July 2024 from $42.17 million in the same period last year. This surge is partly due to Pakistan's decision to allow the export of sugar to Afghanistan, despite Kabul's recent ban on fruit exports to Pakistan following the re-imposition of duties and taxes.

Additionally, exports to other countries in the region, such as Bangladesh and Sri Lanka, also increased. Exports to Bangladesh grew by 8.65% to $57.86 million in July 2024 from $53.25 million in the previous year. Similarly, exports to Sri Lanka surged by 59.92% to $32.72 million from $20.46 million last year. Moreover, the reliance on a limited number of export products and markets makes Pakistan vulnerable to external shocks and market fluctuations. Diversifying the export base and exploring new markets are essential steps to ensure sustainable economic growth. Given the current trends, Pakistan must focus on enhancing its domestic production capabilities and reducing the import bill through import substitution strategies. Additionally, fostering stronger trade relationships with neighbouring countries, particularly in sectors where Pakistan has a competitive advantage, could help mitigate the widening trade deficit.

Credit: INP-WealthPk