All-time High Trade Deficit

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Thursday morning’s headlines about the trade deficit clocking in at an all-time high after rising 162.4 percent in November 2021, and the subsequent bloodbath at the stock exchange, would have been sobering for the ruling party that aggressively refuses to entertain any narrative about the economy other than that it’s doing very fine. Just the day before, in fact, it was troubling to see reports about the federal cabinet noting a decrease in inflation and going to the point of ridiculing newspaper stories about an 11.5 percent rise in prices in November; not the least because this number was provided by the Pakistan Bureau of Statistics (PBS), which is itself an arm of the government. Even when sharing the trade data, Advisor to PM on Commerce Razak Dawood only share export figures, no doubt to portray a rosy picture, not mentioning that imports rose three times as much and the deficit is now deeper in red than ever before.
That the market is anxious is very understandable. The trade balance will clearly not turn around in time to do justice to all the boasts at the time of the budget and the annual inflation target of 7-9pc has already been crossed with nothing to suggest price rationalisation anytime soon. And since the current account is the principal determinant of the strength of the currency, there’s a very real fear of yet another round of rupee depreciation with interest rates set to rise more, of course. All this has happened when work on prior conditions to revive the IMF program is not yet complete, so there ought to be a lot more trauma down the road.
No matter how much the government tries to spin things around, these numbers speak for themselves. Plus, it’s not as if most people have to check the PBS website to know about rising prices since they get all the first-hand information they need when they go shopping for their lunch and dinner. Now, with the unmanageable trade deficit and the need to tighten monetary policy even further, there is going to be a lot more pressure on the finance ministry as well as the state bank when it comes to debt repayment. That’s bad news for the people of Pakistan because they will eventually have to pay for this shortfall. That also makes it bad news for the PTI government because very soon these people will go to the polls to choose their next government.