Pakistan's Trade Deficit with Regional Countries Rises Despite Export Growth

Pakistan's trade deficit with nine regional countries increased by 17.92% to $6.193 billion in the July-March period of the 2023-24 fiscal year, driven primarily by higher imports from China and India. This rise occurred despite a 20.74% increase in exports to these countries, reaching $3.313 billion during the same timeframe.

According to data from the State Bank of Pakistan (SBP), Pakistan's imports from the nine regional countries grew by 18.88% to $9.506 billion in the first nine months of the current fiscal year. This resulted in a slight increase in the trade deficit with most of these countries compared to the previous year.

China remains Pakistan's largest regional trading partner, accounting for over 60% of the country's exports to the nine countries. However, while exports to China saw growth, exports to the other eight regional countries remained negative during the period.

Why this matters: The widening trade deficit with regional countries highlights the challenges faced by Pakistan's economy, as it strives to balance its import needs with export growth. The country's reliance on imports, particularly from China and India, emphasizes the need for diversifying its export markets and strengthening its domestic manufacturing sector.

In a related development, the SBP decided to keep its policy rate unchanged at 22% in its recent monetary policy meeting, despite a decline in inflation to 18% in April 2024. The central bank's decision was primarily influenced by external account considerations rather than inflation concerns.

The SBP's voting pattern in the April meeting remained largely unchanged, with only two members voting for a rate reduction. This suggests that the members were informed about the rationale behind maintaining the status quo to appease international lenders. However, most members now believe that a rate cut is likely in June, as inflation continues to decline and high real interest rates help suppress demand.

The tight monetary and fiscal policies implemented by Pakistan in the 2023-24 fiscal year have yielded positive results in terms of a reduced current account deficit and a stable currency. However, the country continues to grapple with low economic growth, which remains a concern for policymakers and businesses alike.

Key Takeaways

• Pakistan's trade deficit with 9 regional countries rose 17.92% to $6.193B in Jul-Mar 2023-24.
• Imports from China and India drove the deficit increase, despite 20.74% export growth to $3.313B.
• China accounts for over 60% of Pakistan's exports to the 9 countries, but exports to others declined.
• SBP kept policy rate at 22% due to external account concerns, despite inflation decline to 18%.
• Tight policies reduced current account deficit, but low growth remains a concern for Pakistan.