Finance

Trade deficit declined by 15pc MoM in January

Karachi, February 25, 2021: During January 2021, the country’s trade deficit declined by 15 percent MoM to US$2.3 billion, as per the SBP data.

Receding import payments (down 12 percent MoM) were the primary reason for the lower trade deficit, where the petroleum group recorded the most significant decline (down 31 percent MoM), followed by a drop in machinery group (down 13 percent MoM) and food group (-9 percent MoM). Key items within these groups that posted MoM declines were crude oil, LNG, power generating machinery and wheat.

In the transport category, CKD parts for motor cars recorded the largest increase (up 34 percent MoM). This was the highest-ever monthly import payments for import of CKD parts for motor cars, and while this could partly be due to a jump in global commodity prices (such as steel), it most likely also reflects the impact of (1) higher demand, and (2) new entrants with  high value products and very low localization levels.

Cotton imports surged to over US$1 billion in 7MFY21, which is a reflection of the drop in local production in the current year. History indicates that following such massive surges in cotton imports (irrespective of whether this is due to demand or supply side factors), an increase in local production typically follows, as farmers increase acreage to benefit from higher prices.

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