Pakistan: As exports decline, economic plight becomes worse

Pakistan: According to an article in the local media, Pakistan’s exports fell 20.4% in December, marking the fifth consecutive month that the country’s foreign shipments have decreased. This indicates that the downturn is caused by structural issues and cannot be written off as a transient setback.

According to the Dawn story, Pakistan’s weakest link in the stability chain of its external sector has always been its low export performance. This has become more worse in recent years due to dwindling private and foreign official funding flows, which were used by succeeding administrations to support the weak balance-of-payments situation.

According to the report, the country’s external sector recovery is at greater danger due to the ongoing export contraction since rising imports might undo the gains made over the previous two years due to demand compression.

According to the study, imports that surpassed $6 billion last month for the first time this fiscal year indicate that a change in policy toward trade normalization and liberalization has boosted import demand more quickly than expected.

Considering the size of the nation and its consumption patterns, the $118 million increase in imports is very small. However, it causes the monthly trade imbalance to increase by 25 percent to $3.7 billion when compared to the steep decline in exports. Even more concerning is the trade imbalance’s six-month cumulative picture. The article went on to say that the $19.2 billion trade imbalance reported for the July–December period is 35% more than it was the previous year.

For as long as possible, the State Bank may fund the trade imbalance and increase reserves via robust remittances and its dollar purchases. However, using this tactic to counteract a fundamentally growing trade imbalance has dangers of its own since it exposes the external account to changes in the host country’s labor market and geopolitical shocks.

Furthermore, persistent reserve-building interventions reduce domestic liquidity and exacerbate exchange rate pressures. In addition to endangering the stability of the external sector, declining export performance compels policymakers to stifle growth in order to prevent another balance-of-payments crisis. The report went on to say that if anything, the most recent trade figures show a gap between sustainability and stabilization.