Pakistan’s trade deficit has extended to a massive amount of $23.385 billion during last fiscal year. This is a worrisome trend even for the volatile economic situation of Pakistan where high trends of fiscal deficit are considered quite normal. Provided by the government, the State Bank again has justified that the trade deficit is due to the import of machinery and infrastructure equipment to support future growth, as well as to help fill the energy shortage in Pakistan. The argument is partially valid, but it is unwise to rely on it beyond a certain point. Imports of oil and associated products are the largest share of the increase in imports. Last year, oil imports declined by 35 per cent, while this year they grew by 10pc, in the first half of the fiscal year according to State Bank data. Much of this reversal owes itself to the rising price of oil in international markets, although some amount of quantitative increase is also a factor.
Further aggravating the problem is a total absence of thinking (beyond CPEC) on trade matters at the top levels of government. This is not unique to this government. Pakistan has a history of treating trade casually, or treating it as a part of our overall push to constantly seek ‘assistance’ from the world for one reason or another. The previous government tried to push through a normalization of trade ties with India, but failed due to pressure from the military, which would prefer to keep our relationship to India wedded to territorial grievances. Most trade around the world is regional first and long distance second. Neighboring countries with long histories of animosity and outstanding border issues, whether territorial or maritime, have managed to keep their strategic and economic interests separate from each other. But Pakistan’s economic ties with three of its four neighbors are grossly underdeveloped, despite strong affinities.
What our trade policy suffers from is too much strategic input, and not enough economic thinking. Rivalry rather than cooperation with our neighbors is the primary lens through we view all regional relationships. If this does not change, we will be left to battle this yawning trade deficit with stopgap measures, such as the so-called Strategic Trade Policy of last year, which had nothing strategic about it. That policy envisioned providing some cash support to a few areas in a puny attempt to boost exports. Its failure is evident in the fact that nobody in the exporting community even applied for the benefits on offer. Without addressing this imbalance in our policy priorities at the top, all successive commerce secretaries have been left with little more to do other than tinker at the margins — an incentive here, a rebate there — with no meaningful change in the larger picture, driving us inexorably deeper into the quicksand of growing deficits. The economists working in the public sector should take steps to sensitize the government and the military to the enormous price that Pakistan has always paid, and continues to pay today, for its failure to put trade on top of its external policy priorities.