Rising trade deficit

NEWS from the external sector of the economy continue to be discouraging. According to the latest data released by the Federal Bureau of Statistics (FBS), Pakistan’s trade deficit ballooned to $12.433 billion in the first eight months (July-February, 2008) of the current fiscal year, up by 39.05 percent over $8.942 billion recorded in the corresponding period last year, mainly due to surging crude oil and food prices. The import bill jumped by 21.95 percent to $24.141 billion in July-February, 2008, against $19.796 billion in the same period of 2006-07. The sharp rise was largely due to the import of costly crude oil and edible items, particularly wheat which witnessed highest-ever increase. The import bill of certain non-essential items like mobile phones, gold and cars also witnessed a substantial increase during the period. On the other hand, exports grew by only 7.86 percent to $11.707 billion in July-February, 2008 compared to last year. A rather unusual development was an unprecedented increase in both exports and imports during the month of February, 2008. While exports grew by 22.5 percent to $1.55 billion, imports witnessed an alarming jump of 42 percent to $3.659 billion as against dollar 2.572 billion in the same month last year. Judged from the developments during the current fiscal year so far, there seems to be no doubt that Pakistan is heading fast towards highest-ever trade deficit in its history. The trade gap of over $12 billion during the first eight months could easily cross $17 billion during 2007-08 which will be another record over the deficit of $13.5 billion in the preceding year. It may be mentioned that in the trade policy for 2007-08, the government had fixed an ambitious export target of $19.2 billion but had refrained from projecting the level of imports and the overall trade gap during the year.
The fact that now our exports cannot even finance 50 percent of the import bill is a matter of great concern. The trade deficit of this magnitude could have been tolerable if inflows like home remittances, foreign investment and privatisation proceeds had been sufficient to narrow the current account gap to sustainable levels, which is not the case as current account deficit is also widening simultaneously. As if to indicate their helplessness, the economic managers of the country some times attribute the widening gap in the external sector to the increase in the international prices of petroleum products, food and edible oils to record levels. However, it needs to be pointed out that it is the importing countries which have to adjust to the evolving situation and achieve a sustainable balance in their current account by reducing the level of imports and/or expanding exports. Of course, it will be painful to adjust to the new reality as it would mean reduced level of domestic consumption, but there is no alternative. Saudi Arabia has granted $300 million for balance of payments support but countries experiencing external sector deficits cannot survive on doles and have to find the resources of their own to finance the import bill. This is a tough task and another challenge for the incoming government. Inaction on this front would be no option as foreign exchange reserves of the country, though at a comfortable level at present, are not adequate to sustain the haemorrhage of fast deteriorating external sector developments for long.





Ball in Israel’s court?

TEL AVIV’S reply to Hamas’ ‘ball in Israel’s court’ peace offer carries zero surprise value. When presented the option of scaling back violence and loosening the border choke in return for cessation of rocket attacks it is apparently so sick of, Israel’s choice of restarting the blitzkrieg on Gaza betrays its real intention in very clear terms. The international media’s obsession with the Palestinian issue rises in direct proportion to Israel’s drive against the territories, which is understandable. It does not take understanding of rocket science to realise just why Israel will try tooth and nail to push the peace process as far away from realisation as possible. For negotiations to move beyond the initial headline and photo-op stage, the two sides will have to turn to the more sensitive issues sooner or later. These involve halting Israeli settlement expansion before turning to the plight of refugees, the fate of Jerusalem, the future of the occupation, etc, while demanding Palestinians to halt all manner of aggression, especially rocket fire. Clearly Israel would have to make more concrete gestures, which is proof of its greater unfairness in the standoff. Also, with the Palestinian side promising honouring its side of the bargain right now, practically all moves towards peace would become Israel’s responsibility. For a brutal occupier, that is definitely not the most desirable way forward.
Yet continuing with its blatant killing and choking augurs even worse for the Jewish state in the long run. As warned repeatedly in this space, every drop of unfair blood spilled by Israel becomes fuel for fires of hatred, stoking them continuously to produce generations of hate-driven wronged Palestinians who will be back with a vengeance. For a united West that continues to turn a blind eye to, even support, Israel’s inhuman violation of international law, crying ‘terrorism’ when the chickens come home to roost would amount to disregarding the logical spillover of a crooked policy. Since Washington’s moves for change have not gone beyond lipservice in over sixty years, it is time the Muslim, especially Arab, world united to put a final and forceful list of demands to powerful capitals across the Atlantic. The Middle East can simply not tolerate any more chaos owing to one state’s refusal to come to terms with reality. Washington has become the proverbial curse in the region, turning all it touches into dust. The time for meaningful change is now, and the Arabs must demand no less of a West that has run regional hosts’ patience dry.

—Khaleej Times