Economy of

Pakistan
Week 14 Reading Material
Pakistan’s Foreign Trade- Basic Facts
A. Pakistan’s Foreign Trade- Basic Facts

a. Introduction

Foreign trade is the exchange of capital, goods, and services across

international borders or territories.

Without international trade, nations would be limited to the goods and

services produced within their borders.

Foreign trade is in principle not different from domestic trade as the

motivation and the behavior of parties involved in a trade does not change
fundamentally depending on whether a trade is across a border or not.

The main difference is that international trade is typically more costly than
domestic trade. The reason is that a border typically imposes additional costs
such as tariffs, time costs due to border delays and costs associated with
country differences such as, the legal system or a different culture.
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b. Types of Foreign Trade

(i) Import

Importing is the purchasing of goods or services made in another country.

For example, importing edible oil from Chinese producers to sell in Africa.

(ii) Export

Exporting is selling domestic-made goods in another country. For example,

Haleem Garments exports Readymade Garments (RMG) products to
Western Countries.

(iii) Re-export

When goods are imported from a foreign country and are re-exported to
buyers in some other foreign countries, it is called re-export.
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c. Pakistan’s Foreign Trade- Basic Facts

Pakistan trade deficit has decreased by US$ 1.879 billion in the current
fiscal year (July-April 2018- 19).

Pakistan’s exports during the period July-April (FY 2019) stood at US$
20.01 billion compared with US$ 20.49 billion during the corresponding
period of FY 2018. It reflects a 1.9 percent decline in dollar terms.

Pakistan’s imports during the period July-April (FY 2019) stood at US$
44.03 billion compared with US$ 46.302 billion during the
corresponding period of FY 2018. It reflects a 4.9 percent decrease in
dollar terms.

Overall, the trade deficit has decreased by 7.28 percent in the Jul-Apr
FY2019 to US$ 23.93 billion from US$ 25.81 billion in the same period
last year.
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(i) Exports

The current government is focusing on making the exports a driver of

sustainable economic growth. It is endeavoring to improve competitiveness
and efficiency of the industry especially export oriented sector and import
substituting production, reducing structural anomalies and improving trade
by increasing institutional efficiencies and reducing cost of doing business.

The government has taken number of initiatives like economic reform

package (2019), supply of gas and electricity to zero rated industry at lower
cost, continuation of prime minister’s export 2017, sales tax refunds,
incentive package (2019) and formulation of Strategic Trade Policy
Framework (2018-2023). Government has reduced cost of production of
textile sector by abolishing regulatory duty on cotton imports.

Moreover, second free trade agreement has been signed with China,
providing tariff concessions to 313 items. Pakistan is expanding its
marketing and trade promotion campaign to all the major markets.
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In order to increase exports, the government has continued the
five export oriented sectors - including textile, leather, sports
goods, surgical goods and carpets - as part of zero rated sales tax
regime.

Devaluation has surely increased the cost of imported raw

materials.

However, this has been largely offset by the generous export

incentives provided including larger export rebates, withdrawal of
import duties on inputs of raw materials and intermediate goods
and, more recently, the issuance of promissory notes against
refunds due along with subsidies on gas and electricity consumed.

All these measures likely to pay dividend with lag effect.

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Structure of Exports

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Cont.

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Concentration of Exports

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Direction of Exports

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(ii) Imports

Import target for FY2019 was set to US$ 56.5 billion. As per PBS data,
imports stood at US$ 45.471 billion in July-April FY2019 as compared
to US$ 49.360 billion in the same period last year showing a decline of
7.9 percent.

The reduction in imports is due to decrease in imports of furnace oil,

machinery & electric equipment, palm oil and textiles.

Current scenario of declining imports shows that imports will be

according to the estimates.

With the falling global demand, weakening consumer and business

sentiment among the major economies, trade tensions and economic
stabilization measures at home, the imports are expected to be further
decrease
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Additionally, the government has launched import substitution
drive that will be instrumental in reducing pressure on current
account.

The Finance Supplementary (Second Amendment) Act, 2019

particularly offered tariff concessions to those industries that can
offer import substitution.

It lowered tariffs on the raw materials and intermediate goods that

can help local firms in meeting local demand that is currently
being fulfilled by the foreign firms.

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Structure of Imports

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Cont.

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Direction of Imports

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