Revival in demand and Food imports- Drastic sign for Twin Deficits

October 19, 2020 (MLN): Pakistan’s trade deficit during 1QFY21 drastically increased by 2.6% YoY to USD 5.84 billion as exports depicted a meagre decline of 65 bps to USD 5.47 billion compared to 1QFY20, whereas, imports during the period increased by 1% YoY to USD 11.3 billion compared to the same quarter last year, shows recently published PBS data.

Sector-wise, Textile, Cement and Meat witnessed increase in exports by 3%, 8% and 8% YoY respectively to USD 3.47 billion, USD 72 million and USD 76 million in 3MFY21 compared to the corresponding period last year.

The rise in textile exports during the period under review was mainly the resultant of rise in exports of value added segments where Towels, Knitwear, Bed-wear and Readymade garments have surged respectively by 13% YoY, 10.46%YoY, 8.40% YoY and 5% YoY to USD 205 million, USD 861 million, USD 651 million and USD 701 million recorded compared to1QFY20.

According to the report by Shajar Capital, the rise in textile exports was mainly the reason of the economic recovery from worst pandemic in the world along with the depreciating currency parity of Pakistan as PKR depreciated against EUR and USD respectively 11% YoY and 6% YoY in1QFY21 to average PKR of PKR 195.14/EUR and PKR 166.94/USD in the international markets.

The exports of Food sector declined by 17.87% YoY to USD 808.3 million during 1QFY21 compared to USD 984.2 million reported in the same quarter last year as a result of lockdowns and slow economic recovery in the Western and European Countries. Furthermore, drastic crops cultivation along with the locusts’ attack followed by harsh monsoon rainy season in the country has also caused decline in food exports during the period mentioned above, the report highlighted.

Cement exports on the other hand surged by 8% YoY to USD 72.29 million from USD 66.7 million, As per the report, the lifting of lockdown in Asian and South Asian Countries has increased cement exports as exports dispatches in north region jumped by 17% YoY to 9.98MT and in south region improved by 38% YoY to 3.59 M, thus surging the total exports of the country by 22% YoY to 13.58 MT in 1QFY21 compared to 1QFY20.

On the import front, the report cautioned that the revival of demand and food imports are the drastic signs for twin deficit, as the food imports during the period surged drastically by 56% YoY to USD 1.71 billion. The main sectors that recorded rise in food imports are mainly wheat and sugar where Wheat imports have surged to USD 102 million in 1QFY21 and Sugar imports have surged to USD 13 million compared to 1QFY20’s negligible import amounts. This rise in wheat and sugar imports was mainly caused by the change in Govt. Policies where the government took an initiative of importing utility products from the international market in order to keep the economy from hyper inflationary pressures along with saving the economy from stagflation.

However, despite these austerity steps by the government, inflation in the economy has drastically surged by 38bps YoY in 1QFY21 to average NCPI of 8.83% compared to1QFY20, the report stated.

Likewise, on the construction and infrastructure side, Machinery imports witnessed a growth of 4% YoY to USD 2.11 billion. According to the PBS data, the biggest contributor in surging Machinery import bill, in terms of value, is Telecom machineries, which showed a significant surge of 57.54% YoY to USD 590 million, followed by Power Generating Machinery whose imports during the period jumped by 36% YoY to USD 424 million. Within the Telecom head, the highest growth was observed in Mobile imports, up by massively 83% YoY to USD 493 million during 3MFY21.  

With regards to oil imports bill, which declined by 26.5% YoY to USD 2.33 billion mainly on the back of 14.68% YoY decline in imports of Petroleum Products to USD 1.1 billion. Petroleum Crude and LNG imports witnessed a decline of 15.86% YoY and 56.52% YoY to USD 692.7 million and USD 419.9 million respectively.

The decline in Petroleum Crude oil imports has mainly occurred due to slower shifting of lockdowns along with sluggish demand in the local market, said the report.  Further, the decline was also witnessed due to the decline in average OPEC prices by 30% YoY in 1QFY21 to USD 43.71/ bbl. compared to USD 62.63/bbl. in 1QFY20, it added.

On the textile front, the import of textile related products grew by 50% YoY to USD 677 million in 1QFY21 primarily due to 46% YoY increase in Raw Cotton imports to USD 208 million from international markets.

The rise in Raw cotton imports was mainly the reason of the lifting of sanctions and custom duties on textile related products by the government, the report said.

Copyright Mettis Link News

Posted on: 2020-10-19T16:17:00+05:00

37523