Pakistan’s balance of payments is set to improve and its trade deficit will shrink further as the country’s exports are likely to improve more than its imports in the coming months.
This was stated by renowned Canadian advisory firm BCA Research, a leading independent provider of global investment research, in its latest report.
The firm stated that the country’s total exports declined 6.8% year-on-year in June, which is a considerable improvement as compared to the massive 54% and 33% contractions that occurred in April and May, respectively. The country was on a strict lockdown for the whole month of April, which was then lifted in early May.
As the number of daily new cases and deaths are falling, the country is likely to remain open, lowering the odds of a domestic supply disruption. In addition, as DM growth recovers, the demand for Pakistani products will improve as well.
It further highlighted that Europe and the US together account for about 54% of Pakistan’s exports.
The government is keen to boost the performance of the textile sector, which accounts for nearly 60% of the country’s total exports. It will likely approve the industry’s request for supportive measures, including access to competitively priced energy, a lower sales tax rate, quick refunds, and a reduction of the turnover tax rate, added the report.
Moreover, the government has prepared an incentive package for the global promotion of the country’s information technology (IT) sector, aiming to increase IT service exports from $1 billion to $10 billion by 2023. Currently, over 6,000 Pakistan-based IT companies are providing IT products and services to entities in over 100 countries worldwide.
Regarding Pakistan’s imports, low oil prices will help reduce the country’s import bill year-on-year over the next six months, said BCA.
BCA Research in its report said that remittance inflows – currently at 9% of GDP – have become an extremely important source of financing for Pakistan’s trade deficit.
Even though about half of the remittances sent to Pakistan are from oil-producing regions like Saudi Arabia, UAE, Oman and Qatar, low oil prices may only have a limited impact on Pakistan’s remittance inflows.
Citing an example, BCA said that when Brent oil prices fell to $40 in early 2016, remittances sent to Pakistan in the second half of that year declined by only 1.9% on year-on-year terms. Over the first six months of this year, the remittances received by Pakistan still had a year-on-year growth of 8.7%. At the same time, the government has planned various measures to boost remittances. For example, a “national remittance loyalty program” will be launched on September 1, 2020, in which various incentives will be given to remitters.