Pakistan’s trade balance negative with 84 nations

[Devil Soul]

Pakistan’s trade balance negative with 84 nations
By Our Correspondent
Published: September 6, 2016
9SHARES
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Commerce minister says exports decreased by $4.5b from 2012-15. PHOTO: ADB

ISLAMABAD: Pakistan’s trade balance is negative with as many as 84 countries and the highest trade deficit is with China, standing at $9.1 billion, according to official statistics tabled in the National Assembly on Monday.

According to the data, the second most negative trade balance is with United Arab Emirates at $4.8 billion while it is $2.6 billion with Saudi Arabia, $1.9 billion with Indonesia, $1.6 billion with Kuwait and $1.35 with neighbouring India.

Similarly, it is $724 million with Malaysia, $360 million with Australia and $228 million with Iran. The last three countries among the list of 84 for negative trade are British Virgin Islands with $12 million, Cocos (Keeling) Islands with $4 million and Greenland with $1 million.

Steps for improvement

The commerce ministry stated in its reply that in order to improve the balance of trade, the ministry is making efforts on three fronts: trade diplomacy, promotion and policymaking. The three steps include diplomacy through unilateral and reciprocal concession with partner countries, it explained.

The steps include promoting trade through holding business exhibitions and sending delegations along with improving export policy with competitive measures.

Besides, the ministry is currently negotiating trade agreements with Thailand and Turkey to secure enhanced market access in these countries. The ministry is also in the process of reviewing Free Trade Agreements and Preferential Trade Agreements with China, Malaysia and Indonesia, among other countries, to make trading more effective from Pakistan’s perspective.

Decline in exports

In reply to another question, trade and commerce minister Khurram Dastagir Khan informed the Lower House that Pakistan’s exports have decreased from $24.58 billion in 2012-13 to $20.8 billion in 2015-16.

International recession and decrease in demand were cited as several reasons for the decline in exports.

Market concentration

He also stated that due to market concentration, Pakistan’s exports lack diversification as more than 50% of exports rely on only six markets: USA, China, Afghanistan, UAE, United Kingdom and Germany.

The minister also maintained that Pakistan’s exports are dominated by primary and intermediate goods rather than value-added finished products. For instance, 74% of food items and 40% textile exports are primary commodities. “There is minimal value enhancement and value creation through branding and design innovation,” he said in his reply.

Appreciated currency

Khan also stated that since November 2013, many currencies around the world significantly depreciated such as the Indian Rupee (7%), Chinese Yuan (8%), South Korean Won (10%), Thai Bhat (11%), Euro (20%) and Brazilian Real (51%). In contrast, the minister said, the Pakistani Rupee has appreciated by 3% during the same period which made Pakistani exports less competitive.

He also stated that the overall economic meltdown, shift in demand, change of taste and preferences for products and price hike are among the exogenous factors for the decrease in exports.

Published in The Express Tribune, September 6th, 2016.

 

[Furqan Sarwar]

Doesn't looks like a good news. Hope the initiative which are given should be implemented in order to improve this problem.

Also we need to work on increasing our exports.

 

[wiseone2]

Pakistan’s trade balance negative with 84 nations
By Our Correspondent
Published: September 6, 2016
9SHARES
SHARE TWEET EMAIL

Commerce minister says exports decreased by $4.5b from 2012-15. PHOTO: ADB

ISLAMABAD: Pakistan’s trade balance is negative with as many as 84 countries and the highest trade deficit is with China, standing at $9.1 billion, according to official statistics tabled in the National Assembly on Monday.

According to the data, the second most negative trade balance is with United Arab Emirates at $4.8 billion while it is $2.6 billion with Saudi Arabia, $1.9 billion with Indonesia, $1.6 billion with Kuwait and $1.35 with neighbouring India.

Similarly, it is $724 million with Malaysia, $360 million with Australia and $228 million with Iran. The last three countries among the list of 84 for negative trade are British Virgin Islands with $12 million, Cocos (Keeling) Islands with $4 million and Greenland with $1 million.

Steps for improvement

The commerce ministry stated in its reply that in order to improve the balance of trade, the ministry is making efforts on three fronts: trade diplomacy, promotion and policymaking. The three steps include diplomacy through unilateral and reciprocal concession with partner countries, it explained.

The steps include promoting trade through holding business exhibitions and sending delegations along with improving export policy with competitive measures.

Besides, the ministry is currently negotiating trade agreements with Thailand and Turkey to secure enhanced market access in these countries. The ministry is also in the process of reviewing Free Trade Agreements and Preferential Trade Agreements with China, Malaysia and Indonesia, among other countries, to make trading more effective from Pakistan’s perspective.

Decline in exports

In reply to another question, trade and commerce minister Khurram Dastagir Khan informed the Lower House that Pakistan’s exports have decreased from $24.58 billion in 2012-13 to $20.8 billion in 2015-16.

International recession and decrease in demand were cited as several reasons for the decline in exports.

Market concentration

He also stated that due to market concentration, Pakistan’s exports lack diversification as more than 50% of exports rely on only six markets: USA, China, Afghanistan, UAE, United Kingdom and Germany.

The minister also maintained that Pakistan’s exports are dominated by primary and intermediate goods rather than value-added finished products. For instance, 74% of food items and 40% textile exports are primary commodities. “There is minimal value enhancement and value creation through branding and design innovation,” he said in his reply.

Appreciated currency

Khan also stated that since November 2013, many currencies around the world significantly depreciated such as the Indian Rupee (7%), Chinese Yuan (8%), South Korean Won (10%), Thai Bhat (11%), Euro (20%) and Brazilian Real (51%). In contrast, the minister said, the Pakistani Rupee has appreciated by 3% during the same period which made Pakistani exports less competitive.

He also stated that the overall economic meltdown, shift in demand, change of taste and preferences for products and price hike are among the exogenous factors for the decrease in exports.

Published in The Express Tribune, September 6th, 2016.

Why wouldn't the Pakistani rupee be depreciated to encourage exports ?

 

[el che]

Why wouldn't the Pakistani rupee be depreciated to encourage exports ?

To encourage foreign investment and also exports get cheaper so more competitive.

 

[Nilgiri]

Why wouldn't the Pakistani rupee be depreciated to encourage exports ?

Purchasing power will be eroded. It is a fine tight rope to walk. If there is enough surplus liquidity it is doable...(hence why China has managed it quite well and also India to lesser extent)....but Pakistan does not have the forex and tax base to do that without suffering major consequences. The margin elasticities of say textiles (input/output cost differentials) also could very well hurt Pakistan given Pakistan is already in dire need of capital good replacement.

Maybe after CPEC (and assuming enough buffers are created and enough economical injection by the Chinese into capital goods with hopefully low depreciation) there can be a more confident foreign monetary strategy by Pakistan.

@farhan_9909 @LA se Karachi @Arsalan @django

 

[G0dfather]

There are generally two types of nation with whom trade balance of other nations is rarely positive.

One include major oil producing nations and the other include only CHINA.

 

[Nilgiri]

To encourage foreign investment and also exports get cheaper so more competitive.

If you can buy more rupees with each dollar, I dont see why foreign investment would be affected by depreciation....it would actually encourage it somewhat (ceterus paribus).

You are thinking more along the lines of interest rates.

 

[Skull and Bones]

I believe Pakistanis be happy that their currency has appreciated by 3%.

 

[el che]

If you can buy more rupees with each dollar, I dont see why foreign investment would be affected by depreciation....it would actually encourage it somewhat (ceterus paribus).

You are thinking more along the lines of interest rates.

You're right. I thought I read, why the Pakistani rupee "would" be depreciated.

 

[LA se Karachi]

Why wouldn't the Pakistani rupee be depreciated to encourage exports ?

Purchasing power will be eroded. It is a fine tight rope to walk. If there is enough surplus liquidity it is doable...(hence why China has managed it quite well and also India to lesser extent)....but Pakistan does not have the forex and tax base to do that without suffering major consequences. The margin elasticities of say textiles (input/output cost differentials) also could very well hurt Pakistan given Pakistan is already in dire need of capital good replacement.

Maybe after CPEC (and assuming enough buffers are created and enough economical injection by the Chinese into capital goods with hopefully low depreciation) there can be a more confident foreign monetary strategy by Pakistan.

@farhan_9909 @LA se Karachi @Arsalan @django

Exactly. Depreciating the rupee significantly solely to boost textile exports would be a very dicey move. A foolish move right now. Maybe CPEC will change this. We have to wait and see.

As you point out, textile prices are tied to the global market. At the end of the day, clothes are clothes. And if production costs become too high in Pakistan (or if global prices become too low due to an abundance of supply), foreign investors would simply take their business elsewhere. Pakistanis would be left with a much weaker currency in the international market without a sufficient amount of exports. Indeed, with its low tax collection levels and its acute need of capital, this would probably end up backfiring as things stand right now.

 

[Nilgiri]

Exactly. Depreciating the rupee significantly solely to boost textile exports would be a very dicey move. A foolish move right now. Maybe CPEC will change this. We have to wait and see.

As you point out, textile prices are tied to the global market. At the end of the day, clothes are clothes. And if production costs become too high in Pakistan (or if global prices become too low due to an abundance of supply), foreign investors would simply take their business elsewhere. Pakistanis would be left with a much weaker currency in the international market without a sufficient amount of exports. Indeed, with its low tax collection levels and its acute need of capital, this would probably end up backfiring as things stand right now.

Yep according to my sources in Pak textile industry (good friend's family business back home in Pakistan)...there is a major need in Pakistan for import of newer generation machinery (power looms and such)...the bulk of the industry is making do for now but the reliability and depreciation of the older stuff is hitting their throughput. They are not getting enough access to credit (because of economic climate, general low savings in Pakistan and govt bureaucracy) to buy newer machinery and save much costs in the long run.

So a depreciation here will actually hurt Pakistan textiles (which is still a major export for Pakistan) because then more rupees will have to be used to buy the new capital goods when they eventually are bought down the road (from say China under CPEC)...basically the input is more price inelastic than the output (given level of competition) given Pakistan has not grown a large enough domestic capital goods industry (this will take a long time if its ever done)....i.e margins from the increased export volumes will not be enough to compensate for the increased cost of importing the machinery needed to bulk up those production volumes in the first place. This fundamental problem is hopefully what CPEC will fix over time.

Pakistan in mean time should look to push its processed RMG sector rather than bulk textiles. The capital goods here are relatively cheaper (stitching/sewing machines and such instead of large power looms) and are not so credit intensive. Basically you need flexible labour laws for the seasonality of the demand...and then invest in large scale factories (for economies of scale) just like Chinese did in the 90s....to the tune of as much skilled labour you can provide here (which is another problem that Pakistan has to fix - though at least with RMG the cost is not unsurmountable).

This way you can grow the liquidity buffer over time and then move to light manufacturing and such. It is the model BD is trying to do right now and they are having some success with it.

@Bilal9

 

[wiseone2]

Purchasing power will be eroded. It is a fine tight rope to walk. If there is enough surplus liquidity it is doable...(hence why China has managed it quite well and also India to lesser extent)....but Pakistan does not have the forex and tax base to do that without suffering major consequences. The margin elasticities of say textiles (input/output cost differentials) also could very well hurt Pakistan given Pakistan is already in dire need of capital good replacement.

Maybe after CPEC (and assuming enough buffers are created and enough economical injection by the Chinese into capital goods with hopefully low depreciation) there can be a more confident foreign monetary strategy by Pakistan.

@farhan_9909 @LA se Karachi @Arsalan @django

I understand the tradeoffs. at some point your exports are not going to increase. but your imports become expensive. in case of pakistan petroluem prices are directly impacted

 

[LA se Karachi]

Yep according to my sources in Pak textile industry (good friend's family business back home in Pakistan)...there is a major need in Pakistan for import of newer generation machinery (power looms and such)...the bulk of the industry is making do for now but the reliability and depreciation of the older stuff is hitting their throughput. They are not getting enough access to credit (because of economic climate, general low savings in Pakistan and govt bureaucracy) to buy newer machinery and save much costs in the long run.

So a depreciation here will actually hurt Pakistan textiles (which is still a major export for Pakistan) because then more rupees will have to be used to buy the new capital goods when they eventually are bought down the road (from say China under CPEC)...basically the input is more price inelastic than the output (given level of competition) given Pakistan has not grown a large enough domestic capital goods industry (this will take a long time if its ever done)....i.e margins from the increased export volumes will not be enough to compensate for the increased cost of importing the machinery needed to bulk up those production volumes in the first place. This fundamental problem is hopefully what CPEC will fix over time.

Pakistan in mean time should look to push its processed RMG sector rather than bulk textiles. The capital goods here are relatively cheaper (stitching/sewing machines and such instead of large power looms) and are not so credit intensive. Basically you need flexible labour laws for the seasonality of the demand...and then invest in large scale factories (for economies of scale) just like Chinese did in the 90s....to the tune of as much skilled labour you can provide here (which is another problem that Pakistan has to fix - though at least with RMG the cost is not unsurmountable).

This way you can grow the liquidity buffer over time and then move to light manufacturing and such. It is the model BD is trying to do right now and they are having some success with it.

@Bilal9

I don't have much knowledge about the textile industry personally, but you make some great points. The second paragraph of your post I especially agree with. Our energy woes cannot be overlooked either. Investment in manufacturing will continue to be limited as long as load-shedding is at current levels.

However, I'm a bit skeptical of textiles/RMG in general for Pakistan. It's a very simple thing to do and has been a major business since the Industrial Revolution. The primary competitive advantage that a firm has in the textile industry is a low cost of production. As soon as these costs rise, the business moves elsewhere where production costs are lower. I would rather follow the example of China and Taiwan who excelled in manufacturing small, cheap goods and then later larger more specialized goods: Electronics, toys, plastic products, appliances, etc.

It will take some time of course. Pakistan has a long way to go in manufacturing. CPEC should help. But my personal thoughts are that it should pivot to other items like the ones I mentioned, no matter how hard it is. Because ultimately, I believe that textile exports and wages are inversely proportional. If Pakistan's wages begin to rise, its textile exports will fall due to an increasing cost of production. I feel that other products are more protected against rising wages. China has held its share in the global market of many goods despite its rising wages.

 

[Thorough Pro]

People start buying "Made in Paksitan" fell proud and think that this buy is going to keep a fellow citizen employed.

Pakistan’s trade balance negative with 84 nations
By Our Correspondent
Published: September 6, 2016
9SHARES
SHARE TWEET EMAIL

Commerce minister says exports decreased by $4.5b from 2012-15. PHOTO: ADB

ISLAMABAD: Pakistan’s trade balance is negative with as many as 84 countries and the highest trade deficit is with China, standing at $9.1 billion, according to official statistics tabled in the National Assembly on Monday.

According to the data, the second most negative trade balance is with United Arab Emirates at $4.8 billion while it is $2.6 billion with Saudi Arabia, $1.9 billion with Indonesia, $1.6 billion with Kuwait and $1.35 with neighbouring India.

Similarly, it is $724 million with Malaysia, $360 million with Australia and $228 million with Iran. The last three countries among the list of 84 for negative trade are British Virgin Islands with $12 million, Cocos (Keeling) Islands with $4 million and Greenland with $1 million.

Steps for improvement

The commerce ministry stated in its reply that in order to improve the balance of trade, the ministry is making efforts on three fronts: trade diplomacy, promotion and policymaking. The three steps include diplomacy through unilateral and reciprocal concession with partner countries, it explained.

The steps include promoting trade through holding business exhibitions and sending delegations along with improving export policy with competitive measures.

Besides, the ministry is currently negotiating trade agreements with Thailand and Turkey to secure enhanced market access in these countries. The ministry is also in the process of reviewing Free Trade Agreements and Preferential Trade Agreements with China, Malaysia and Indonesia, among other countries, to make trading more effective from Pakistan’s perspective.

Decline in exports

In reply to another question, trade and commerce minister Khurram Dastagir Khan informed the Lower House that Pakistan’s exports have decreased from $24.58 billion in 2012-13 to $20.8 billion in 2015-16.

International recession and decrease in demand were cited as several reasons for the decline in exports.

Market concentration

He also stated that due to market concentration, Pakistan’s exports lack diversification as more than 50% of exports rely on only six markets: USA, China, Afghanistan, UAE, United Kingdom and Germany.

The minister also maintained that Pakistan’s exports are dominated by primary and intermediate goods rather than value-added finished products. For instance, 74% of food items and 40% textile exports are primary commodities. “There is minimal value enhancement and value creation through branding and design innovation,” he said in his reply.

Appreciated currency

Khan also stated that since November 2013, many currencies around the world significantly depreciated such as the Indian Rupee (7%), Chinese Yuan (8%), South Korean Won (10%), Thai Bhat (11%), Euro (20%) and Brazilian Real (51%). In contrast, the minister said, the Pakistani Rupee has appreciated by 3% during the same period which made Pakistani exports less competitive.

He also stated that the overall economic meltdown, shift in demand, change of taste and preferences for products and price hike are among the exogenous factors for the decrease in exports.

Published in The Express Tribune, September 6th, 2016.

 

[RiazHaq]

Having a negative trade balance could signify strong domestic economy where consumers are confident.

One of the reasons that US runs big deficits is because it has a stronger economy relative to its trade partners and there's strong domestic consumer demand.