Pakistan slashes trade deficit by 43% in FY23 amid debt crisis: Report

Cash-strapped Pakistan has managed to significantly reduce its trade deficit by an impressive 43 per cent to $27.55 billion in the fiscal year 2023, said a report on Wednesday.

The Pakistani government's stringent measures to control imports played a crucial role in achieving this substantial reduction, aimed at stabilising the country's critically low foreign exchange reserves and mitigating the risk of default, reported Express Tribune.

In FY22, the trade deficit had reached a daunting $48.35 billion, raising concerns about the nation's economic stability.

However, the government's strict administrative measures on imports, coupled with the adverse impact of floods in 2022, had a negative effect on the domestic economy, resulting in a provisional growth rate of only 0.3 per cent in FY23, compared to 6.1 per cent in FY22.

Recent data from the Pakistan Bureau of Statistics (PBS) revealed that imports decreased by 31 per cent to $55.29 billion in FY2023, marking a significant drop from the record high of $80.13 billion in FY22.

Meanwhile, export earnings contracted by nearly 13 per cent to $27.74 billion in the import-dependent domestic economy during FY23, compared to $31.78 billion in FY22.

Despite these challenges, experts noted that Pakistan's export performance in overseas markets exceeded expectations. Even with inflationary pressures, consumers in major export markets like Europe and the US curtailed their spending, contributing to better-than-expected export figures.

Fahad Rauf, head of Research at Ismail Iqbal Securities (IIS), projected that the trade deficit could increase again in FY24 once the government lifts the ban on imports as part of the conditions set for the $3 billion loan program by the International Monetary Fund (IMF). The IMF recently signed a staff-level agreement with the Pakistani government for a $3 billion "stand-by arrangement" to support immediate efforts to stabilise the economy against external shocks.

Rauf said that to stabilise and revive the compromised economy from FY23, the country will need to gradually increase economic activities and aim for growth in FY24.

The Pakistani government has set a target of 3.5 per cent economic growth for the current fiscal year after experiencing a contraction in FY23.

While the official report on FY23's full-year growth figures is yet to be released, Rauf praised the government's "conscious decision to live within its means," which resulted in a significant 43 per cent reduction in the trade deficit in FY23. He explained that the government only allowed imports equivalent to export earnings and inflows of workers' remittances to avoid financing the deficit through foreign debt. This policy not only helped repay maturing foreign debt on time but also prevented default.

In contrast, the previous Finance Minister, Miftah Ismail, had initially advised businessmen to control imports for the first three months of FY23, expecting a full resumption of imports with the revival of the IMF program. However, poor implementation of the program's conditions led to multiple suspensions, preventing the reopening of imports throughout the year, as reported by the newspaper.

Pakistan had been struggling to manage its external liabilities as its foreign reserves hovered around $4 billion, with experts warning of a possible default in the coming months. With the approval of its policies by the IMF, the country will gain access to multilateral and bilateral loans to bolster its reserves and plan for the long term.

The Pakistani economy has faced several challenges in recent times, including devastating floods last year and commodity price hikes following the war in Ukraine.

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