Trade deficit contracts 15% in January

The trade deficit shrank by 15% year-on-year to $2.07 billion in January as both exports and imports fell during the month, The News has reported.

Trade figures available to The News showed that the trade deficit had amounted to $2.43 billion in the corresponding month a year earlier. In January 2020, exports declined 3.17% year-on-year to $1.97 billion and imports fell 9.63% to $4.04 billion. 

However, the trade deficit was marginally wider by 1.13% month-on-month from $2.04 billion in December 2019.

In January, exports were 1.15% lower from $1.99 billion in December 2019, while imports remained flat. 

Data by the Pakistan Bureau of Statistics (PBS) further showed that the trade deficit has contracted sharply by 28.4% to $13.75 billion in the first seven months of the current fiscal year.

Imports stood at $27.25 billion in the July-January period compared to $32.42 billion in the corresponding period a year earlier, depicting a sharp 15.95% decline. 

Exports, however, rose only slightly by 2.14% year-on-year to $13.5 billion during the period under review, rekindling hope that exports are likely to recover by the year-end compared to the previous fiscal year. 

Exports had fallen to $22.9 billion last fiscal year from $23.2 billion a year earlier.

Read also: Current account deficit shrinks 73 percent in July-November

Analysts, however, remain skeptical over the recovery in exports considering the economic slowdown and slump in imports, which could hurt the export-oriented industry relying on imported raw materials for production. 

Textile exports, which account for 60 per cent of the total export revenue, are not showing any sign of recovery despite rupee depreciation. The rupee has lost 35 per cent against the dollar over a year.

Jawed Bilwani, chairman of the Pakistan Apparel Forum, has attributed falling exports to a liquidity crunch faced by local industries. 

“Textile exports may decline in the next two to three months,” he said. “Hundreds of exporter-oriented SMEs (small and medium enterprises) have stopped production owing to liquidity problems as they have not received their sales tax refund claims for the last seven months.”

Bilwani added that approximately Rs100 billion in tax refunds have been pending with the government for the last seven months despite the introduction of an automatic refund payment system, known as FASTER (fully automated sales tax e-refund).

Under the new system, sales tax refund claims are to be settled within 72 hours after submission of goods declaration. The system was introduced last year following the withdrawal of a zero-rated regime. Now, exporters have to pay 17% sales tax, much like others.

Read also: Trade deficit declines by 34 per cent in five months

Exporters have demanded the government to restore the zero-rated facility for the sector as the government could not collect Rs185 billion in sales taxes as envisaged after abolishing of the facility from an estimated Rs1.2 trillion textile sector. 

In July-November 2019, the tax collection under the head was only Rs23.6 billion.

Originally published in The News