At $32 billion, February’s trade deficit numbers paint a bleak picture of the coming year and our consistent dependence on imports. It is important however, to understand that the month-on-month projection in itself is not always reflective of the whole story. There is an expectation that the coming months will see a boost in remittances and exports after the routine January lows that come with every year. |
But there is always room for introspection and course correction. We must look beyond the marginal gains and end the reliance on the inconsistent patterns of remittances, which in themselves, should never account for a significant portion of money inflows into the country. The brunt of the responsibility to keep the current account numbers in our favour falls on exports, and this is exactly where our problem lies.
The government’s economic managers have thrown everything but the kitchen sink at the problem of the import-export imbalance. One of the first focuses was the cut on imports, which has been largely unsuccessful. Yes, the bill of luxury goods and items has reduced in some specific respects, but the lack of domestic substitutes has all but ensured that the government’s high tariffs are simply absorbed in other areas, leading to greater overall inflation in the country.
Then there are the main drivers of our high import bill—oil products, wheat and sugar. The first of these is naturally needed for all economic activity in the country, and hence becomes a problem whenever international oil prices rise, as they have because of Russia in Ukraine.
Sugar and wheat are both produced locally, but supply problems cause shortfalls that must be addressed. Pakistan’s yearly demand of wheat currently stands at an estimated 31m tonnes, out of which we are only expected to meet 25m tonnes through local production, which would be almost 4m tonnes lower than the figure last year. This means that an additional burden on imports is expected. A long-term solution to work on is to allow for greater incentives for farmers to sow what, considering this year, the urea fertiliser crisis has forced many to shift to cheaper sowing alternatives.
For sugar, the problem is both simple and complex simultaneously. Too much government oversight on price controls and overzealous subsidies alongside little intervention in vertical or horizontal chains of production and their impact on potential market manipulation tells the story of a self-created problem. Take sugar off both the export and import lists, and we may be able to see where the production levels stand in reference to domestic demand.
In the coming year there is a need to focus on export and stabilising these glaring inconsistencies in our supply chain. The deficit will improve as these anomalies are addressed.