lahore

The country’s trade deficit has increased to $14.5 billion in first eight months of current fiscal year, which is up 15.6 per cent annually. The higher deficit is jointly blamed to 3.8 per cent higher imports to $30.5 billion and 5 per cent lower exports to $16.0 billion. Alone in Feb 2015, trade deficit has widened by 44 per cent monthly to $1.4 billion. On month on month basis, imports were recorded at $3.3 billion, up 8.5 per cent, while exports declined by 8.7 per cent to USD1.9 billion.

Rising economic activity justifies some growth in imports, though falling exports, especially from textile sector, is the major concern. During 8MFY15, Pakistan textile exports remained stable at USD9.2 billion (vs. USD9.1 billion in SPLY) despite of incoming benefits from GSP Plus status awarded by European Union. We blame strong local currency, especially against Euro, as the major reason behind stagnant exports. Just to highlight, on Jan 23, 2015, it was reported that ‘Depreciating Euro to hurt textile exports’, stating that Euro depreciation could expose local textile manufacturers to exchange losses, lower volumes and declining margins.

In Feb 2015, Pakistan value added exports have declined by 13 per cent MoM to USD577 million.

 Within this segment, Knitwear exports declined by 11 per cent MoM to USD181 million while readymade garment exports were recorded at USD175 million (Down 14 per cent MoM). Similarly, Pakistan’s total exports to EU, as published by SBP, showed a decline of 6.7 per cent MoM to USD546 million.

Experts said that stronger PKR would keep hitting exports as Pakistan’s commodities bound for US & Europe would become more expensive, despite their unchanged dollar prices. To recall, since the start of CY15, GBP and EUR have been depreciated by 3.3 per cent and 9.4 per cent, respectively, against PKR. However, PKR has dropped by meager 1.2 per cent against the greenback during the same period despite the fact that USD index has appreciated by 7.1 per cent in CY15TD. Further, expected fall in consumer purchasing power in Europe might affect demand of exports from Pakistan (and other Asian nations) to the EU.

It is expected lower exports in coming months, which would affect profitability of textile sector and would have negative implications on fiscal account.