Trade Deficit

In the year 2021-22, more than 23b dollar hydrocarbons were imported. Of which more than 16b
dollars, was crude oil. , approx. 6b dollars was LNG, more than billion and half was coal.

In Year 2022-23, hydrocarbons import was more than this. In every fiscal year, the hydrocarbon import
of Pakistan is 25% of overall import. This is because, More than 60% of electricity is generated from
imported hydrocarbons. The biggest reason of trade deficit is heavy import bills of hydrocarbons.

Second Major reason for trade deficit is the weak industrial sector resulted in less exports and more
imports. First of all, industrial sector of pakistan is persistently weak. The first major era of industrial
1958-66, second was in early 1990’s. For there has been repeated setbacks to the industrial sector of
Pakistan. The biggest setback was nationalization of industries in 1970’s, not only hampered but
reversed the growth. Private sector was discouraged, competition was over, resultantly declined in the
industries. Persistent energy crisis in deindustrialization of Pakistan. Froom 2007-16, more than 35% of
mega textile units shifted abroad. (Source: All Pakistan textile association0

More than 80% cottage industry shut down. All Pakistan small industrial association)

Faisalabad that has remained the Manchester of Pakistan barreled. A series of industrialists in Punjab
closed down their industries and shifted to real estate businesses.

Many of the Karachi based industrialists closed down their industries and shifted either to real estate or

In the year 2022-23, more than 200 medium and large sized industries closed down in Pakistan. Honda,
indus, Suzuki almost closed down their units in Pakistan. Textile units like Nishat, Kohinoor and
Lawrence Pur etc closed down in Pakistan. Many of sports industries closed. IT industry specially mobiles
units closed down in Pakistan. Why this all happened? Persistent energy crisis became the major
reason . The state could not provide the non stop electricity supply. Production cost became primarily
expensive. Expensive elelctricity .

The state could not make the required imports of raw material or half to meet the demand of industry.
Because of depleting dollar reserves . Such and more are the factors for

Because of the devaluation of Pkr, production cost became expensive that badly discouraged the
construction industry. Steel , wood, cement,bricks, transportations etc became expensive.

Resultantly, the weak industrial sector further degenerated. That resulted in lesser exports and more
imports.

3. Decline in agriculture resulted in increasing trade deficit. Agriculture remained the backbone of
economy of Pakistan. More than 20% for the GDP ??

More than 60% jobs in rural area are provided by agriculture specially crops and livestock. But
agriculture in Pakistan has been persistently declined in the last 2 decades. Pakistan remained one of the
major exporter of cotton as a raw material but in the last 10 years more than 35% of the local industrial
cotton need is imported to meet the local industrial need. Pakistan remained of the major producer and
exporter of tomato ,onion, watermelon,apples, mangoes etc but majority of these are being imported
by Pakistan . A sizeable decline in the livestock specially meat and milk .

Reasons for the decline in agriculture sector is flood, shortage of water, urbanization of agricultural land
, decline in the canal system , decline in the outdated irrigation techniques etc. ( Source:

Decline In the export of cotton , apple, tomato ,onions ,watermelons,mangoes. Many of these products
are imported.

Increase in population resulted in Increasing demand. In 1998 Census, total population size was
140Million , in 2017 C , it reached to 220 Million . In 2023 C , it reached to almost 250 million. Population
almost doubled in last 2 decades. Resultantly consumption increased. The local production sector
whether industry or agriculture was unable to meet the demand. Therefore the state is bound to
increase its imports more and more. Trade deficit increased.

Implications:

The state is facing increasing balance of payment crisis. Like any other country, Pakistan has to sell and
purchase products from the international market in dollars. The tragedy is exports are less imports are
more than double of the total exports. For example. 2021-22, 36 b dollarexports, 80b dollars
imports.This trade deficit is the major reason for the balance of payment crisis.

Increasing dependency on loan . There have been two major reasons for inquiring loan in Pakistan.
Budget deficit and trade deficit that cause balance of payment crisis and majority of bigger portion of
loan is being taken because of balance of payment crisis.

Depletion of dollar reserves results in devaluation of pkr. Trade deficit is the major reason of depletion
of dollar reserves. The lesser the dollar reserves, the decline in the price of pkr. Resultantly imported
products become expensive and it causes more financial crisis.

Solutions

1. Adopt protectionist measures. Any country to reduce its imports has to impose higher taxes on
imported products. Especially those which are luxury goods and products which are similar to
locally produced.
2. Increased production base.
(A) Industry . In the last few years textile industry showed a sizeable growth. In 2019-20, the total
exports of textiles were around 13 Billion dollar. In 2021-22, they reached to almost 20 billion
dollars. A sizeable growth in the electronic industry was noticed. In 2019-20, electronics goods
were above 3 billion dollar, In 2021-22 less than 1.4 billion dollar. Because almost all the mobile
brands with exception of apple installed their units in Pakistan. Sports has been the strength of
Pakistan. Revive leather industry. Automobile industry should be expanded.

Reduce electricity prices.

Reduce taxes.

Provide loans on easier terms and conditions.

 Mid term and long term policies for industries should be given for predictability .

Ease of doing business so that local and international investors are attracted.

Once industries are being promoted , exports would automatically promote. No country can shift
from imports to exports base until it doesnot promote its own industry.

(B) Improve the agriculture sector

A sizeable growth in agriculture , 4 bumbper crops of wheat , maize, rice and sugar in 2021-22. 17%
growth was noticed in the cotton production. These are very encouraging steps but government need to
boost up agriculture more and more.

There should be an increasing focus on cotton production.

There should be an increasing focus on plantation of Palm and olive trees Pakistan as major importers
of edible oils.

Modernization of irrigation techniques.

Expansion of canal systems

Construction of dams.

Seed development programs etc.

3. Focus on the IT sector

In the year 2022 , india earned more than 130 billion dollars from the IT sector ,this amount is bigger
than the total oil export of Saudi Arabia. On the other hand Pakistan IT exports were just above 2 billion
dollars. Bangladesh IT exports were more than 50 billion dollar.

Promote call centres.

Promote IT products. E.g, mobiles

 Loans

The total loan on Pakistan (federal gov of pakistan) in year 2008 was 6 trillion pkr. Out of which 62 billion
dollars for a loan . in the year 2013, the total loan was 12 trillion pkr . Out of which foreign loan was 84
billion dollar. In 2018, total loan was 29 trillion pkr, out of which foreign loan was 105 billion. In 2022,
the total loan was 38 trillion pkr. Out of which the foreign loan was 127 billion dollar.In 2023, total loan
was 51 trillion billion, foreign loan was 138. Something billion.

Any gov can equire loan from local sources like state bank of Pakistan, commercial bank and other
financial entities.

External resources IMF, world bank, ADB, Any country across the world .

Why loan be taken?

1. To meet the budget deficit

2. To meet the balance of payment crisis
3. To finance developmental project e.g many of the CPEC based projects are loan based.

Impacts

1. Pakistan is stuck in a vicious circle of debt servicing ( debt trap) to pay off the loan the gov has to
equire loan. In the last 4 fascal years,approx. 40 billion dollars were to pay off and 27 billion
dollars were paid off. (source: state bank of Pak). Every gov after coming into power has
equired loan first. In 2008 or 2013 or 2018or 2022 equire loan to be able to financially breathe.
2. Loan is always accompanied by conditionalities . 2022 IMF package was accompanied by a long
list of do’s and donts e.g., increase in the per unit electricity prices by 12 pkr. Increase in the fuel
price from 150 to more than 250. The devaluation of Pkr.
3. Inflation . When the prices of fuel increased, it effects everything . Every commodity
edibles,industrial products, agriculture products etc got doubled. E.g. 15kg of flour jumped from
1100 to 2300 plus in one year. Per litre edible oil increased more than double. Same applies to
every vegetable, fruit and other products. Multiples reasons of inflation and conditions of IMF.

Solutions

Equire more loan

Bring structural reforms ( Tax refroms, industrial reforms, agricultutre reforms )

Promote tourism

Encourage foreign investors

Promote remittances
 Remittances

The Pakistani diaspora ( overseas) , they send money back home to their families in Pakistan via banks
and registered money exchange programs is called remittance.

They are the largest stabilizers in the economy of the country. Dollar stability is the major factor in
remittance.

In the year 2021-22, 44 billion dollar outflux because of trade deficit

31 billion dollars arrived through remittances. The short fall was reduced from 44 to 13 billion dollars.
Approximately. 10 million families in Pakistan are dependent on remittances for their routine
expenditure.

How to increase remittances?

1. Regularize the money exchanger . Money exchangers are locally called Hondi or Hawala,a long
list of overseas Pakistanis send money through Hondi , because they deliver quickly this money
doesnot come under the tax . Major reason is that they offer better exchange rates. E.g. October
2022- march 2023, the interbank rate of dollar vs pkr was 225 vs 1 dollar while money
exchangers offered 275 plus vs 1 dollar. Regularize it by registering them. Encourage them to
use banking channel for transaction. From 2018-23, FIA , state bank, security and exchange
commission of pak played key roles in registration of money exchangers.
2. Make the banking sector more and more competitive.
 Quick delivery within 24 hours. now the banks in Pakistan deliver the money to the
account holder.
 Offer Better exchange rate , make it competitive with private market.
3. Roshan Digital account (RDA) . Any Pakistani abroad can open an account in any bank of his /her
choice . It could be in local or foreign currency. The account holder can invest in real estate,
stock exchange , car financing or any other business. They can do online shopping, online
payment ,Can pay bills online. This acc was launched in sep 2020, till june 2022 more than 4
billion dollars arrived in the RDA.

Because of the above mentioned steps , substancial increase occurred in the remittances. In the year
2019-20,total remittances were 21.7 billion dollars. In year 2020-21, remittances were 29.3 billion
dollars. Year 2021-22, it was 31 billion dollar. The amount in RDA was other than this. ( figures from :
State bank of Pakistan )