Pakistan reduces its trade deficit by 43% in FY 23 while being heavily indebted

Imports were tightly regulated by the government in an effort to stabilize the nation’s dangerously low foreign currency reserves and reduce the possibility of default, which was crucial to this large decrease.

The trade imbalance increased to an alarming USD 48.35 billion in the preceding fiscal year 2022, raising questions about the soundness of the nation’s economy, according to The Express Tribune newspaper.

However, the domestic economy was badly impacted by the government’s stringent administrative restrictions on imports and the effects of the floods in 2022, leading to a preliminary growth rate of just 0.3% in FY23 as opposed to 6.1% in FY22.

According to recent statistics from the Pakistan Bureau of Statistics (PBS), imports fell by 31% to USD 55.29 billion in FY2023.

From the record high of USD 80.13 billion in FY22, this is a considerable decline.

In the domestic economy, which is heavily reliant on imports, export revenues decreased by over 13% to USD 27.74 billion in FY23 compared to USD 31.78 billion in FY22.

Despite these difficulties, observers observed that Pakistan’s exports performed better than anticipated in foreign markets.

Better-than-expected export numbers were a result of consumers in key export markets like Europe and the US cutting down on their spending despite inflationary pressures.

As one of the requirements for the USD 3 billion loan program by the International Monetary Fund, which signed a staff-level agreement with the Pakistani government on a USD 3 billion “stand-by arrangement” to support the authorities’ immediate efforts to stabilize the economy from external shocks, Ismail Iqbal Securities’ (IIS) head of research, Fahad Rauf, predicted that the trade deficit could increase again in FY24 once the government lifts the ban on imports.

The nation would need to progressively enhance economic activity and target growth in FY24 in order to stabilize and restore the damaged economy from FY23, he added.

Following a contraction in FY23, the government has set a goal of 3.5% economic growth for the current fiscal year.

Rauf noted that while the government has only tentatively recorded a small growth rate of 0.3%, the official report on FY23’s full-year growth data has not yet been made public.

Rauf commended the administration for making a “conscious decision to live within its means” that led to a dramatic 43% decrease in the trade deficit in FY23. He said that in order to avoid funding the deficit via foreign debt, the government only permitted imports equal to export revenues and inflows of workers’ remittances. This strategy not only assisted in timely repayment of maturing foreign debt, but also avoided default.

In contrast, Miftah Ismail, the former finance minister, had first recommended merchants to restrain imports for the first three months of FY23, believing that the restoration of the IMF plan would permit a complete restart of imports.

According to the newspaper, inadequate execution of the program’s requirements caused many suspensions, prohibiting the reopening of imports throughout the year.

With its foreign reserves hovering around USD 4 billion and analysts predicting a default in the near future, Pakistan has been struggling to keep up with its external obligations. The nation will have access to multilateral and bilateral loans to increase its reserves and make long-term plans after the IMF approves its programs.

The country’s economy has recently suffered a number of difficulties, including the terrible floods from a year ago and rising commodity prices as a result of the conflict in Ukraine.