Recent trade data for Pakistan reveals a monthly trade deficit increase of $0.6 billion, primarily driven by an $0.8 billion surge in imports.
However, on an annual basis, the trade deficit is gradually shrinking at a modest rate of 4 per cent.
This is not necessarily negative news, as import restrictions have been lifted as part of the İnternational Monetary Fund (IMF) programme while the economy is experiencing an uptick in demand.
The encouraging aspect lies in the positive signs displayed by the export sector. The Pakistani rupee (PKR) has depreciated by approximately 35 per cent year-on-year, falling from PKR 220/USD to PKR 280/USD.
Last year, exporters faced challenges in importing raw materials, machinery, and intermediate goods.
Consequently, the 14 per cent year-on-year growth in exports, rising from $2.4 billion to $2.7 billion, is a heartening development, provided this trajectory continues.
Recent measures by the State Bank of Pakistan (SBP) aimed at promoting exports, including competitive gas rates for exporters, reflect a positive intent.
While industries reliant on gas may require more regionally competitive energy rates, the direction is favorable.
Moreover, the alignment of open market and interbank exchange rates may encourage a shift from official channels.
To address Pakistan’s economic challenges, two key corrections are imperative, among many others: increasing tax revenues and enhancing value-added exports.
Depreciation of the currency alone cannot serve as the sole remedy for stimulating growth.
To achieve a comprehensive economic framework, it is essential to boost the exports-to-GDP ratio beyond the current 8 per cent.
This should encourage capitalists to prioritise exports and foreign direct investment (FDI) over property, fixed income, currency, and trading, ensuring sustained double-digit growth over the next five years.