According to newspaper reports, the trade deficit of the country are likely to cross $50 billion mark as the import bill has risen up by 20 percent to reach $48.5 billion in the first 11 months of the current fiscal year.On another note, the exports have dropped to $18.5 billion in the 11 months despite announcement of an export package by Prime Minister Nawaz Sharif five months ago.The trade deficit increased by 42 percent or $8.9 billion in in the third quarter of the outgoing fiscal year. The rising volume of imports have eroded foreign exchange reserves by $3 billion during the period. The past governments used devaluation of the rupee as the only option to arrest the falling exports which brought further chaos in the overall economy of the country. The current government has also been under pressure for the last couple of years to depreciate the Pakistani rupee against dollar which the finance minister resisted until now. What the government has to do is to increase energy supply, improve capacity of the industrial units and extend tax concessions to the industrial sector to produce export surplus.
The size of the economy is growing and the import of machinery has increased by 40 percent to stand at $10.8 billion due to ongoing infrastructure projects in the country. According to a report by the State Bank of Pakistan, the import of machinery and equipment has increased during the first 11 months of the outing fiscal year. However, the speed with which the devaluation of the rupee is unofficially allowed has raised a big question mark for the economists who see alarming raise in trade deficit. The country is still facing severe energy crisis and new power projects have increased the import of equipment and machinery by 71 percent.If the government wants to lower trade deficit, it will have to increase exports as it will be difficult to lower the import bill in the coming years.
The best way to increase exports is to establish industries and it will be only possible if foreign investors are given tax concessions and incentives to invest in the country. It will be difficult to cut the import bill by increasing duties and taxes as the move will open the floodgates of corruption and smuggling.
