ISLAMABAD             -       Pakistan’s trade deficit has contracted by 27.77 per cent in eleven months (July to May) of the current fiscal year due to decline in exports as well in imports.

The country’s trade deficit has recorded at $21.058 billion in July-May period of FY20 as compared to $29.154 billion in the corresponding period of the previous year, according to the latest data of Pakistan Bureau of Statistics (PBS).

The trade deficit has contracted due to massive decline in imports and exports. The country’s exports have reduced by 6.87 per cent to $19.796 billion in July-May period of FY20 from $21.256 billion in same period of last year.

Similarly, Pakistan’s imports have also declined by 18.96 per cent to $40.854 billion in eleven months of the ongoing financial year from $50.41 billion in corresponding months of the previous year. 

The PBS data showed that Pakistan’s exports and imports have fallen in the month of May due to the outbreak of Covid-19 throughout the world.

The country’s exports have declined to $1.391 billion in May 2020 from $2.096 billion in the same month of the previous year showing massive decline of 33.64 per cent.

Meanwhile, the imports have also reduced by 43.17 per cent to $2.851 billion in May this year from $5.017 billion in corresponding period of previous year. Pakistan’s trade deficit has shrunk to $1.460 billion in May 2020 as against $2.921 billion showing reduction of 50.02 per cent.

According to the data, the country’s exports have registered an increase of 45.35 per cent in the month of May 2020. The country has exported goods worth of $1.391 billion in May 2020 as compared to $957 million in preceding month, April. However, the imports have tumbled by around 11.02 per cent.

Imports were recorded at $2.851 billion in May 2020, which was around $3.204 billion in April 2020. The reduction in imports and increase in exports has resulted in increase in trade deficit by 35.02 per cent during the month of May this year over April. Pakistan’s trade deficit was recorded at $1.460 billion in the month of May 2019 as compared to $2.247 billion in the previous month, April.

The massive reduction in trade deficit is helping in controlling the current account deficit. “The current account deficit has continued to narrow, even though both exports and imports have fallen sharply since the coronavirus outbreak,” the State Bank of Pakistan noted in recent monetary policy.

It further noted that exports declined by 10.8 per cent on annual basis in March. Imports, after indicating some recovery on in recent months, have contracted by 19.3 per cent. The April figures from the Pakistan Bureau of Statistics reveal an even steeper decline in both exports (54 per cent) and imports (32 per cent).

While remittances have so far remained resilient, there are potential downside risks given the economic difficulties across the world, especially in oil exporting countries.

Despite challenging global conditions, the outlook for external sector broadly remains stable. The current account deficit should remain bounded and the recent fall in portfolio inflows will be offset by official flows committed by the international community, such that Pakistan’s external position remains fully funded.

Together, these developments, buttressed by the flexible exchange rate regime, should continue to support a steady build-up in the SBP’s foreign exchange reserve buffers.