In the financial year ended June 30, Pakistan saved 8.6 billion, reducing its trade deficit by 27%, according to data released by the Pakistan Bureau of Statistics on Friday.
Through measures to increase taxes and reduce spending, Pakistan’s imports fell to a nine-year low, which also reduced the current account deficit. The foreign exchange deficit in the domestic dollar account was more than 73% during the first nine months of the financial year.
However, despite all this, the rate of domestic exports and imports did not change much, Pakistan is still spending two dollars to earn one dollar like last year.
In the current financial year, Pakistan’s exports stood at 21 21.3 billion, while its imports stood at 44 44.6 billion, leaving our trade deficit at about 23 billion.
A trade deficit means that we pay more for goods and services purchased from around the world than we earn for selling our goods. The latest figures show that our annual imports have declined by 10 billion. However, due to the decline in global demand due to coronavirus, our exports in the last quarter also declined by 6.84% compared to the fiscal year 2019.
The Balance of Trade (BOT) clarifies the difference between our imports and exports, which is an important part of our current account. Large trade deficits widen the current account deficit, which is a measure of the state of the economy.
Reducing the current account deficit is the biggest challenge for PTI Government since coming to power in 2018. In the first few months alone, foreign exchange reserves fell by several billion dollars, and only two months of reserves for import payments remained. Pakistan came close to default in 2019 due to very few dollars for the repayment of external loans and imports.
To address this issue, the Imran Khan government signed a 6 billion bailout package with the IMF. The agreement with the IMF helped Pakistan avoid default, but it did require painful economic reforms.
To reduce the current account deficit, the PTI government tried to reduce imports by imposing heavy duties on many items. Pakistan’s foreign exchange reserves have doubled to 12 billion this year compared to 2018. In October 2019 and May 2020, the dollar account went into surplus.