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EditorialIncreasing trade imbalance

Increasing trade imbalance

There are several reasons why impoverished countries are poor, but one of the main ones is that they export less and import more. Pakistan’s exports, which peaked in 2021-2022, are currently declining. Pakistan’s exports declined and imports increased as a result of a worldwide economic slowdown and a recession in the areas where exports are received, resulting in a trade imbalance. The resulting fiscal shortfall must be covered by implementing import duties or raising levies. Except for a few occasions, Pakistan has always experienced higher import volumes than exports, with an extraordinary increase in the last four years. Due to the global recession that has been going on for two years and the sharp increase in the value of the dollar against the rupee at the local level during the same period, the foreign exchange reserves have fallen to their lowest level in eight years at five billion dollars. The use of mineral oil for energy, with the resulting increase in import bills and inflation, exacerbated the situation created by last year’s torrential rains and devastating floods, widening the trade deficit. Due to being badly affected, industrial production and exports are facing further decline. The tax targets set by the federal government while preparing the budget for the current fiscal year have been reduced by 170 billion rupees so far. If this trend continues, then the possible situation that will be seen in the remaining 6 months cannot be determined. According to the latest data, the FBR has had to set the tax target for the current fiscal year at Rs7,300 billion instead of Rs7,470 billion in terms of reduction in imports. It is not surprising that this may further increase the fiscal deficit. Finding out the factors behind the reduction in import duties and removing the defects is the prime requirement of the situation.

The Pakistan Bureau of Statistics reported that on a monthly and annual basis, exports decreased by 3.07 percent and 3.77 percent, respectively. Exports decreased by 5.79 percent from July to December of this fiscal year, and on a yearly basis, exports fell by 16.64 percent in December. In December, exports decreased by 3.64 percent. Exports fell by 3.07 percent in October to $2.37 million from September’s $2.44 million.

Pakistan needs to investigate why its products are not in high demand among customers or on the international market. High effective import tariff rates, a lack of long-term financing options for businesses to increase their export capacity, a lack of market intelligence services for exporters, and low firm productivity in Pakistan are all contributing causes to the country’s continuing trade deficit. A change in the rules governing international trade and increased transportation costs could also result in a decrease in exports. Exchange rates, production issues, and supply chain issues could all have a role. These constraints obstruct any genuine effort to turn around the economy since institutional adequacy creates policy ambiguity. While the informal economy helps people stay under the radar to avoid any genuine disclosure of income, people’s mistrust of the government deters them from taking advantage of incentives and makes them resistant to any meaningful enforcement of revenue-related compliances. Throughout Pakistan’s history, the country’s decision-makers have often chosen knee-jerk reactions and temporary fixes as their preferred course of action. Such bandages fix functioned for three to four years before breaking down, forcing another round of creation. Another sign of elite control at the policy level in Pakistan is the absence of long-lasting improvements in taxation laws. Institutional safeguards are in place for the elites of the system to protect their interests. These methods included aristocratic control of political power as well as hereditary succession to the throne. Any economic strategy would favour individuals with higher-than-median earnings while having no impact on the lives of people with lower-than-median incomes if such a clique were in charge.

All of the aforementioned issues beset Pakistan, yet the leaders have not made any real attempts to structurally overhaul the nation’s economic policies. Regressive tax policies designed to tax the already taxed while underfunded tax infrastructure is unable to increase the tax base are one of the other reasons Pakistan is unable to collect more revenues. All tariffs on the raw materials used in the export industry should be eliminated by the government, and task teams should be established to draw investment to a variety of industries. Additionally, the problems experienced by the investors should be remedied right away.

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