Trade Bulletin: July to September 2012

The economy continued to experience high inflation, widening macroeconomic imbalances, and falling reserves due to increased fiscal debts. Declining foreign direct investments, continuous increase in discretionary spending (interest payments on existing debt) challenged Pakistan's ability to manage foreign exchange reserves and thus the economy is vulnerable to external shocks. Gross Domestic Product growth is expected to increase by 0.6% from 3.7% in 2012 to 4.3% in 2013. Inflation (Consumer Price Index) is still high, but reduced from 11.45% in CY11 Q3 to 9.15% CY12 Q3. The Current Account Deficit increased in CY12 Q3 to 2.37% of GDP from 2.22% in CY11 Q3. The Trade Account Deficit is USD $4.26 billion for CY12 Q3 as compared to USD $ 3.98 billion in CY11 Q3. The CY12 Q3 foreign reserves are USD $14.73 billion going down from USD $17.90 in CY11 Q3. Pakistan's undiversified portfolio is evident from the fact that the top 10 export recipients collectively accounted for close to 62%, compared to 61% in CY11 Q3 of the country's total exports. Exports in cement, sugar, textiles, ready-made garments, and towels, among others, increased. Exports declined for knit wear, bed wear, cotton cloth, basmati rice, and plastics. Import commodities that increased are plastics, pulses, telecom products, auto parts, fertilizers, and plastics with a decrease in petroleum products, palm oil, and iron and steel. Trade with India is expected to grow significantly as 6,000 tariff lines will be allowed for trade by the Trade Project. Pakistan's economy continues to demonstrate weaknesses in its structural foundation. Stagnating exports, declining foreign direct investment (FDI), high inflation, energy shortages, and political instability are contributors. The Government of Pakistan stated that it expects the nation's Gross Domestic Product (GDP) in 2013 to increase to 4.3%, a 0.6% increase compared to 2012. This is a positive trend when combined with a decrease in inflation to 8.8% in CY12 Q3. However, Pakistan faces significant interest payments on existing debt in 2013. The payments due to the International Monetary Fund (IMF) in 2013 total approximately USD $3.73 billion. The World Bank provides insight to economies at a micro level through its World Bank Doing Business Index. In October 2012, the 2013 outlook was published with Pakistan rated at 107 out of 185 economies, a slight deterioration from 2012 where it ranked as 104. The World Bank Doing Business Index investigates the regulations that enhance business activity and those that constrain. Pakistan's ranking indicates that the country only improved its enforcement of contracts. The value of the Pakistani Rupee (PKR) continues to weaken against the US dollar. According to the State Bank of Pakistan, the average month-end interbank floating rate reached a record high of PKR 95.79 to USD $1.00 in September 2012. The trade deficit and ongoing debt payments continue to apply pressure on the PKR.