Imports drop due to restriction, pull trade deficit down

 The country witnessed drop in imports, not due to government import substitution policy but because of the lockdown and restrictive orders.

“In the first month of 2020-21, merchandise exports increased by 8.9 per cent to Rs 9.62 billion compared to an increase of 27.7 per cent whereas merchandise imports decreased by 19.6 per cent to Rs 85.81 billion against a decrease of 11.5 per cent a year ago,” according to the macroeconomic report released by central bank today.

With imports continue to exceed exports, the total trade deficit also narrowed down by 22.2 per cent to Rs 76.19 billion in the first month of the current fiscal year 2020-21, the report reads, adding that such trade deficit had contracted by 13.9 per cent in the same period of last fiscal year. “The export-import ratio increased to 11.2 per cent from 8.3 per cent in the first month of the last fiscal year.”

Likewise, the balance of payments (BoP) registered a surplus of Rs 51.46 billion in the first month of the current fiscal year, against a surplus of Rs 6.05 billion in the same period of last fiscal year, according ot the central bank report. “The current account also remained at a surplus of Rs 25.41 billion against a deficit of Rs 9.34 billion in the same month of the last fiscal year.”

The central bank’s report also reveals that the gross foreign exchange reserves in US dollar terms increased to $12.02 billion in mid-August 2020 from $11.65 billion in mid-July 2020. “With this, the foreign exchange adequacy has increased significantly.”

The foreign exchange (Forex) reserves – based on the imports of the first month of 2020-21 – is sufficient to cover the prospective merchandise imports of 17.3 months, and merchandise and services imports of 15.6 months, the report reads, adding that the ratio of reserves-to-GDP, reserves-to-imports and reserves-to-M2 stood at 38.1 per cent, 129.7 per cent and 33.8 per cent, respectively, in mid-August 2020. “Such ratios were 37.2 per cent, 105.7 per cent and 33.1 per cent, respectively, in mid-July 2020.”

The coronavirus (Covid-19) pandemic has hit the government’s spending and revenue mobilisation hard. The federal government spent – based on banking transactions excluding direct payments and unrealised cheques – Rs 95 billion in the first month of the current fiscal year, against Rs 2.62 billion spending in the same month of the last fiscal year. Likewise, the government has been able to mobilise –based on banking transactions including the amount to be transferred to provincial and local governments – revenue of Rs 58.81 billion, compared to Rs 77.53 billion in the same month of last fiscal year. 

Similarly, the deposit mobilisation and credit disbursement of banks and financial institutions (BFIs) also dropped in the first month of the current fiscal year. “While deposits at BFIs decreased by 0.1 per cent compared to a contraction of 0.4 per cent in the same month of the last fiscal year,” it reads, adding that private sector credit from BFIs decreased by 0.5 per cent compared to a growth of 0.5 per cent in the first month of the last fiscal year.