Despite post COVID-19 situation, Pakistan’s external sector perform well

ISLAMABAD, Jun 9 (APP): Pakistan ‘s external sector performed better by encouraging exports performance and imports have also risen significantly because of the description of global supply chain and evolving post COVID -19 situations.

According to Pakistan Economic Survey 2021-22 launched on Thursday, the broad-based surge in global commodity prices, COVID-19 vaccine imports, and demand-side pressures, all contributed to the rising imports.

During Jul-Mar FY2022, goods exports grew by 26.6 percent and amounted to US$ 23.7 billion, whereas services exports grew by 17.1 percent and amounted to US$ 5.1billion.
Resultantly, the trade deficit grew by 55.5 percent to US$ 30.1 billion which is historically high. Remittances which always supported in easing out pressure of trade deficit of both goods and services recorded at US$ 22.9 billion during Jul-Mar FY2022 and posted a growth of 7.1 percent.

According to the Survey this ever-highest level of workers remittances was not sufficient to offset the trade deficit. Thus, the current account deficit was recorded at US$ 13.2 billion during FY2022.

Further, low performance of financial accounts during the period not only resulted in depletion of foreign reserves but also brought the exchange rate under pressure. External sector performance as COVID-19 disrupted economic activity worldwide. Thus, in Pakistan, after a slight contraction of real GDP in FY2020, Pakistan’s economy rebounded in FY2021 and FY2022.

Many policy measures were initiated to support export-oriented industries and facilitate these firms to increase export earnings.

Due to pro-business measures and recent rupee depreciation, (as per PBS data) exports marked an impressive growth of 25.0 percent during Jul-Mar FY2022 amounting to US$ 23.3 billion as compared to US$ 18.7 billion in the same period last year, survey said.

Around two thirds of the increase came from the textile sector, especially from the high value-added segment.

Pakistan’s textile exporters capitalized on the policy support available – including the SBP’s concessionary refinance schemes for working capital and fixed investment, and the regionally competitive energy tariffs – and managed to ship higher volumes to key destinations (such as the US, UK and EU).

Higher cotton prices also helped to increase the export unit prices of both low and high value-added textile products. Apart from textiles, rice exports also rebounded during Jul-Mar FY2022, mainly due to the non-basmati variety.

Supply of energy to export oriented sectors including textile at regionally competitive rates i.e. electricity at US cents 9/kWh all- inclusive and RLNG at US$ 6.5/MMBtu all- inclusive during FY 2022. However, the existing tariff of US$ 6.5 /MMBtu for Captive Power (self-power generation) was revised to US$ 9/MMBtu w.e.f. 15.11.2021 to 31.03.2022.

Release of Rs 16 billion under Duty Drawback of taxes and levies (textiles & non textile) till third quarter of FY2022. Continuation of duty-free import of textile machinery to encourage investment in the textile sector and enhance capacities.

The global economy has faced multiple headwinds during Jul-Mar FY2022. The post COVID-19 growth rebound had contributed to higher consumer demand for many products and commodities, thereby stressing supply chains and leading to a commodity price ‘super cycle’.

From late February 2022 onwards, geopolitical tensions between two major commodity producers – Russia and Ukraine – significantly added onto the commodity price spiral, pushing up prices of energy and food commodities even further.

Just as the higher commodity prices were pressuring external accounts of emerging markets (EMs), higher inflation out-turns in the US and other advanced economies resulted in central banks adopting a tightening monetary policy stance.

The revival of global economic activity in the first half of 2021 has boosted merchandise trade over its pre-pandemic peak, as global merchandise trade volume has increased by 9.8 percent in 2021.

The global trade grew by 26 percent and reached US$ 22.4 trillion, while services trade grew by 15 percent and reached US$ 5.7 trillion. World merchandise trade volume is projected to grow by 3.0 percent in 2022 and 3.4 percent in 2023 provided the Ukraine-Russia war does not expand further.

The total imports during Jul-Mar FY2022 clocked at US$ 58.9 billion as compared to US$ 39.5 billion in the same period last year, showing a growth of 49.1 percent.

The increase in imports is recorded in all the major groups. Multiple factors have contributed to the steep rise in imports during Jul-Mar FY2022.

Rising global commodity prices contributed significantly to the increasing import volume.
Disaggregated data on imports indicates that the energy group is the largest source of the increase in imports, contributing over one-third to the YoY increase in imports during the period. Similarly, price-led pressures were also noted across non-energy commodities imported by Pakistan, such as edible oil (palm and soybean), sugar, tea, fertilizer, and steel.

At the same time, the domestic demand for imported raw materials (such as cotton and steel) and capital goods was also elevated in the wake of the policy induced economic rebound.