FeaturedNationalVOLUME 19 ISSUE # 34

Pakistan’s trade dynamics: A shift towards sustainable growth

Pakistan’s trade landscape witnessed significant shifts in fiscal year 2023-24, marked by a notable increase in exports and a moderated trade deficit. This period saw exports rise to $30.645 billion, highlighting a 10.54 percent growth compared to the previous year. However, challenges persist, urging the need for strategic reforms to bolster export competitiveness and reduce import dependence.

Pakistan’s trade imbalance narrowed over 12% to $24.09 billion during the fiscal year 2023-24 (FY24) owing to a notable surge in exports alongside a slight dip in imports, as unveiled by data from the Pakistan Bureau of Statistics (PBS). The nation’s trade gap, delineated by the disparity between exports and imports, was recorded at a deficit of $24.09 billion for the July to June interval of 2023-24, in contrast to the $27.47 billion deficit observed during the equivalent timeframe of the prior year. Exports experienced a significant uptick while imports saw a marginal downturn, collectively mitigating the trade deficit.

In the FY24 period, Pakistan’s exports climbed by 10.54% to reach $30.65 billion, rising from $27.72 billion in the same span of the previous year. Conversely, imports saw a minor decrease of 0.84%, falling to $54.73 billion in FY24 compared to $55.19 billion in FY23. According to the PBS, the country’s trade deficit, however, swelled substantially by 30.39% year-on-year, hitting $2.39 billion in June 2024, up from $1.83 billion in the corresponding period of 2023. Both exports and imports rose, yet the spike in imports was more pronounced.

Exports advanced by 7.3% to $2.53 billion in June 2024, up from $2.36 billion in the same month of the previous year. Meanwhile, imports jumped significantly by 17.43% to $4.92 billion in June 2024 from $4.2 billion in the same month last year. Additionally, on a month-on-month basis, the trade deficit increased markedly by 15.13%, climbing to $2.39 billion as compared to $2.07 billion in May 2024.

The data indicated a substantial decline in exports while imports remained relatively stable. Exports decreased notably by 10.92% to $2.53 billion when compared month-over-month to $2.84 billion in May. Conversely, imports inched up by 0.08%, reaching $4.92 billion from $4.91 billion the previous month. Pakistan’s trade landscape for the fiscal year 2023-24 presents a mixed scenario. While domestic exports exhibited an encouraging 10.5% increase to $30.064 billion, imports escalated even more rapidly, culminating in a broader trade deficit.

The country exported goods worth $30.64 billion, reflecting a 10.5% boost in domestic exports compared to the previous year. On the import front, Pakistan procured goods valued at $54.73 billion, resulting in a national trade deficit that expanded by 12.3%, reaching $24 billion. This burgeoning deficit underscores the persistent challenges in harmonizing the country’s trade balance.

June’s fiscal data revealed a significant rise in both exports and imports. The export volume rose by 7%, amounting to $2.5 billion, while imports surged by 17.4%, reaching $4.9 billion. These statistics underscore the dynamic nature of Pakistan’s trade activities and the crucial need for strategies to manage the trade deficit effectively.

The uptick in both exports and imports showcases the vigorous economic activities within the nation. However, it also underscores the need for measures to enhance export competitiveness and diminish reliance on imports. During the July-June 2024 period, exports escalated to $30.645 billion from $27.724 billion the previous year, marking a 10.54 percent increase in dollar terms.

Two critical observations emerge from this data. Firstly, the previous fiscal year’s export figures were the result of the prior federal government’s flawed economic policy of artificially controlling the rupee-dollar exchange rate (with reserves under $3.5 billion). This approach led to multiple exchange rates, prompting the International Monetary Fund (IMF) to withhold a staff-level agreement on the ninth review under the ongoing Extended Fund Facility program. This misguided policy also caused remittance inflows to contract by $4 billion in 2022-23, as Pakistani remitters reverted to the illegal hundi/hawala system, which had previously been curtailed after the pandemic.

Comparatively, the 2021-22 fiscal year might be more relevant, with exports peaking at $32.492 billion, indicating a 6 percent decrease in 2023-24. Secondly, the rise in exports was not in value-added items—which in Pakistan are largely dependent on agricultural outputs like textiles, carpets, leather products, and sports goods—but in vegetable products. Vegetable exports surged from $2.9 billion in July-May 2023 to $5.06 billion in the same period of 2023-24, a remarkable 74 percent increase. Within this category, cereal exports increased by 75 percent, oil seeds and oleaginous fruits by 105 percent, and edible vegetables by 152 percent. Other export categories, including textiles, raw hides and skins, leather, and mineral products, saw declines.

This spike in vegetable exports likely contributed to the high inflation that persists today. On a positive note, the trade deficit shrank from $27.4 billion in July-June 2023 to $24.089 billion this year, a 12.32 percent decline. This reduction was driven by a larger increase in exports—a total of $2.921 billion over two years—and a $464 million decrease in imports.

Although imports were not as heavily suppressed in 2023-24 as in the previous two years, this may explain why the large-scale manufacturing sector, dependent on imported inputs, registered a modest growth of 0.45 percent in July-May 2024, compared to a negative 8.77 percent in the same period of 2023, according to the Economic Update and Outlook June 2024.

It is crucial to recognize that agricultural output remains highly dependent on weather conditions. With Pakistan being particularly vulnerable to the impacts of climate change, vegetable exports should not be relied upon as a major source of export revenue. Therefore, complacency is not an option. The government must critically evaluate the composition of exports and develop an export sector focused on high-value-added products that do not rely heavily on domestic agricultural output for key inputs.

While Pakistan celebrates the growth in export figures, largely driven by agricultural products, caution is warranted. The nation’s economic resilience hinges on diversifying exports beyond agricultural commodities and addressing structural issues in trade policies. It is imperative for policymakers to focus on nurturing high-value-added exports that are less vulnerable to climatic fluctuations, ensuring sustainable economic growth in the years ahead.