June 10, 2021 (MLN): Amidst the uncertain and precarious global economic environment, where the global economy was lurching under the impact of the unprecedented COVID-19 shock, Pakistan’s external sector has appeared as a key buffer for resilience, noted the Pakistan Economic Survey (PES) 2020-21 published by the Ministry of Finance on Thursday.
The comfortable external balance position of Pakistan has been supported by surplus current account balance on the back of robust remittances flow and a sustained recovery in exports. Furthermore, improvements in services and primary income account also provided a cushion to turn the current account deficit of US$ 4.1 billion into a surplus of US$ 959 million during July-March FY2021.
The survey noted that Pakistan’s imports and exports both picked up the momentum, closely following the V-shaped recovery in line with global trade.
As per the survey, Pakistan’s policy stance after the contraction induced by the COVID-19 has now shifted from stabilization to growth. This became a major reason in the momentum build-up for imports and exports as the resumption of economic activities gave a boost to industrial production.
Total imports during July-March FY2021 clocked at US$ 39.5 billion as compared to US$ 34.8 billion in the same period last year, marking a growth of 13.6 percent.
This upward stream in imports may be attributed to the rising demand for intermediate goods due to the resumption of economic activities after the pandemic weekend.
With that, the highest contributor in the growth of imports is the food group. During July-March FY2021, the food group witnessed a growth of 54.5% where its import reached US$ 6,121.4 million as against US$ 3,963.3 million within the same period last year, within the sector, a major surge was noticed in the import of wheat, sugar, palm oil and dry fruits.
The import of petroleum group declined by 14.7 percent during the period under review and reached US$ 5,471.0 million as compared to US$ 6,417.3 million during the corresponding period last year. This was mainly due to historically low global oil prices and limited transportation in the wake of COVID-19.
A significant change was also seen in the import of transport group surging by 68.7% and reaching US$ 2,018.3 million during July-March FY2021 as compared to US$ 1,196.5 million last year.
With regards to exports, the country was aimed to reach US$ 22.7 billion for the fiscal year 2021. However, the exports during July-March FY2021 amounted to US$ 18.7 billion as compared to US$ 17.4 billion in the same period last year, nonetheless, manifesting a formidable growth of 7.1 percent as compared to the 2.2 percent in the same period last year.
The government’s important measures regarding tariffs and stabilization against the rapidly growing pandemic became a key feature in the road towards growth.
On the exports front, the food group saw a decline of 1.9% in comparison to the same period last year. Within the group, the Basmati rice exports declined by 27.3 percent in value and 33.2 percent in quantity during July-March FY2021 as compared to the corresponding period last year. The contraction in the export of rice was mainly driven by higher prices due to the unavailability of shipment containers which raised the average cost of shipping.
Taking advantage of the situation, India took over the market by offering lower prices to increase its share further. “However, it is important to highlight that Pakistan has started reaping benefits from long-awaited GI tag for basmati rice against India received in January 2021. Resultantly exports of basmati rice showed a remarkable turnaround and witnessed 73 percent growth in March FY2021 (on MoM basis) over February FY2021” survey cited.
The textile group, having a 60 percent share in total exports, witnessed a growth of 9.1 percent during July-March FY2021 compared to the corresponding period last year. A key contributor in the textile sector was the introduction of the Export Financing Scheme (EFS) where out of Rs 68.7 billion EFS loan, Rs 44.8 billion has been given to the textile sector during July-March FY2021.
Moreover, the export of petroleum products saw a major decline due to the serious outbreak of COVID-19, falling by 35%, within which the crude oil exports dropped significantly by 58.9 percent and reached US$ 62.7 million.
Among the top export destinations, the USA maintained its strong position, being the last export market for Pakistan with a volume of US$ 3,248.43 million during July-February FY2021, registering a growth of 21%. The volume of imports reached US$ 1,682.22 million against US$ 1,673.36 million last year.
Besides that, the Balance in Trade of Goods and Services during July-March21 saw an increase in trade deficit by 17.7% to US$ 18.7 billion as compared to US$ 15.9 billion last year where exports of goods did not witness a noticeable change but the import of goods grew by 9.4 percent to US$ 37.4 billion as compared to US$ 34.2 billion last year. Similarly, the exports of services also witnessed a moderate change moderately increasing from US$ 4.34 billion to US$ 4.37 billion, primarily due to travel restrictions and lockdown.
Meanwhile, import of services declined by 20.4 percent and stood at US$ 5.7 billion as compared to US$ 7.2 billion last year. Nonetheless, with a remarkable growth of 26.2%, remittances tuned up to US$ 21.5 billion during the first nine months of FY2021. However, on a Y-o-Y basis, remittances posted a record high growth of 43.1 percent in March 2021 and clocked at US$ 2.7 billion as compared to US$ 1.9 billion last year, becoming the foremost contributor in the current account surplus.
With a great recovery in the current account and vigorous increase in workers remittances country’s foreign exchange buffers have now started to lift up, contributing to the Pakistani Rupee appreciation. Moreover, with strong inflows through Roshan Digital Accounts (RDA) the value of Rupee seems to hold a strong position.
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