I hardly remember anything positive about Pakistan economy after the last military rule ended. So it was refreshing to see a good sign emerging from all the chaos that is happening in Pakistan due to suicide bombings and fanaticism.
By the way, does anyone know what “restrictive demand policies of government” means?
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Narrowing of trade deficit
EDITORIAL (July 19 2010): News on the external sector of the country continues to be encouraging. Official figures released by the Federal Bureau of Statistics (FBS), on 14th June, show that** the trade deficit of Pakistan, during 2009-10, was dollar 15.32 billion, or 10.54 percent lower than the dollar 17.13 billion registered in the previous year**. Both, the increase in exports and the fall in imports, contributed to the narrowing of the deficit.
While exports during the outgoing year increased by around 10 percent to reach a record level of dollar 19.38 billion as compared to the dollar 17.68 billion last year, **imports declined marginally **from dollar 34.82 billion to dollar 34.70 billion during the same period. Similar was the behaviour of the monthly trade account of the country. The trade deficit during June, 2010 dropped by 22.69 percent to dollar 1.40 billion from dollar 1.81 billion in the same month last year. It was also lower by 12.73 percent, when compared to the previous month ie May, 2010, again due to an increase in exports and a reduction in imports.
A fall of over 10 percent in the trade deficit during 2009-10 and particularly an accentuation of this trend in the latest month of the year is very welcome news for the country. Such an achievement is all the more satisfying when seen against the background of a stagnant domestic economy and a global recession both of which were expected to exert a downward influence on our exports. The surpassing of the export target by about dollar one billion during the year definitely shows the resilience of our exports and would give the much-needed confidence to the exporters of the country that they could successfully face severe competition, against heavy odds, and even when no concessional treatment was available to Pakistani products in the international market.
It was also good to see that imports of the country were contained within reasonable limits. This, in our view, could be largely due to the restrictive demand policies of the government and the market-determined exchange rate of the rupee, which made the imported goods more expensive in rupee terms, and lowered their consumption in the domestic market.
Anyhow, a substantial narrowing of trade deficit, together with record level of home remittances received during FY10, is sure to reduce the current deficit of the country by a huge margin because these are the two main components of our external sector accounts. In its third quarterly report for the year 2009-10, the State Bank had estimated the current account deficit of the country between 2.2-2.8 percent of the GDP, as against the initial projections of 5.3 percent. With the new data on trade deficit and home remittances now available, the external sector deficit is expected to be even lower than the latest estimates of the SBP.
**There is hardly any need to say that a drastic reduction in the current account deficit would bolster the foreign exchange reserves of the country, reduce the need to borrow from outside sources, help stabilize the exchange rate of the rupee and contain the emerging inflationary pressures within reasonable limits. If such a healthy trend persists, the country could also disengage itself from the IMF programme at some point of time and devise its own economic policies without foreign intervention.
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In this context, it would also be proper to give high marks to the government for maintaining a proper policy framework to achieve a reasonable balance in the foreign sector. Hopefully, the government would be able to stick to a policy which has worked well, so far, for the country.
Copyright Business Recorder, 2010