Foriegn Trade Of Palistan

Pakistani exports in 2005

Pakistan is a member of the World Trade Organization, and has bilateral and multilateral trade agreements with many nations and international organizations.

Fluctuating world demand for its exports, domestic political uncertainty, and the impact of occasional droughts on its agricultural production have all contributed to variability in Pakistan's trade deficit.

In the six months to December 2003, Pakistan recorded a current account surplus of $1.761 billion, roughly 5% of GDP. Pakistan's exports continue to be dominated by cotton textiles and apparel, despite government diversification efforts. Exports grew by 19.1% in FY 2002-03. Major imports include petroleum and petroleum products, edible oil, chemicals, fertilizer, capital goods, industrial raw materials, and consumer products.

Past external imbalances left Pakistan with a large foreign debt burden. Principal and interest payments in FY 1998-99 totaled $2.6 billion, more than double the amount paid in FY 1989-90. Annual debt service peaked at over 34% of export earnings before declining.

With a current account surplus in recent years, Pakistan's hard currency reserves have grown rapidly. Improved fiscal management, greater transparency and other governance reforms have led to upgrades in Pakistan's credit rating. Together with lower global interest rates, these factors have enabled Pakistan to prepay, refinance and reschedule its debts to its advantage. Despite the country's current account surplus and increased exports in recent years, Pakistan still has a large merchandise-trade deficit. The budget deficit in fiscal year 1996-97 was 6.4% of GDP. The budget deficit in fiscal year 2003-04 is expected to be around 4% of GDP.

In the late 1990s Pakistan received about $2.5 billion per year in loan/grant assistance from international financial institutions (e.g., the IMF, the World Bank, and the Asian Development Bank) and bilateral donors. Increasingly, the composition of assistance to Pakistan shifted away from grants toward loans repayable in foreign exchange. All new U.S. economic assistance to Pakistan was suspended after October 1990, and additional sanctions were imposed after Pakistan's May 1998 nuclear weapons tests. The sanctions were lifted by president George W. Bush after Pakistani president Musharraf allied Pakistan with the U.S. in its war on terror. Having improved its finances, the government refused further IMF assistance, and consequently the IMF program was ended. The government is also reducing tariff barriers with bilateral and multilateral agreements.

While the country has a current account surplus and both imports and exports have grown rapidly in recent years, it still has a large merchandise-trade deficit. The budget deficit in fiscal year 2004-2005 was 3.4% of GDP. The budget deficit in fiscal year 2005-06 is expected to be over 4% of GDP. Economists believe that the soaring trade deficit would have an adverse impact on Pakistani rupee by depreciating its value against dollar (1 US $ = 60 Rupees (March 2006) ) and other currencies.

One of the main reasons that contributed to the increase in trade deficit is the increased imports of earthquake relief related items, especially tents, tarpaulin and plastic sheets to provide temporary shelter to the survivors of earthquake of October 8, 2005 in Azad Jammu and Kashmir and parts of the NWFP, an official said. The rise in the trade gap was also fuelled by high oil import prices, food items, machinery and automobiles.

The Petroleum Ministry says that this year the bill of oil imports was expected to reach $6.5 billion against $4.6 billion in the last fiscal year, which is the main reason behind the all-time high trade deficit.

The EU is the single largest trading partner of Pakistan absorbing over one-third of the exports in 2003.