PAKISTAN’s current account deficit has risen to $17.4 billion or 4.6 percent of the economy in the past fiscal year due to the widening trade deficit, despite multiple measures taken by the government and the central bank since the last quarter of 2017. 2021 to restrict imports . Growth in exports and remittances sent home by Pakistanis living abroad helped somewhat to close the gap, but high international commodity and oil prices caused the country to spend more on its energy and other imports . Higher prices and a 33 percent increase in imports from the petroleum group have more than doubled the country’s oil import bill to $2.9 billion in June from $1.4 billion in May, the central bank said, and month-over-month trade deficit rose 27 percent, despite a decline in non-oil imports. A widening current account deficit amid declining dollar inflows from multilateral and bilateral lenders, as well as dwindling foreign investment, have put huge pressure on foreign exchange reserves and the rupee in recent months, fueling rapid inflation and forcing the State Bank to cut borrowing costs. to multi-year highs and damaged investor confidence in the economy.
Finance Minister Miftah Ismail recently said a policy plan will be forthcoming soon. “Imports will gradually decrease and exports will increase organically within three months,” he said without elaborating. The Staatsbank is also hopeful that the current account will moderate from this month. The “… surge in oil imports pushed the current account gap to $2.3 billion in June, despite higher exports and remittances. So far, oil imports are much lower in July [due to the accumulation of record-high stocks] and the deficit is expected to resume its moderating trajectory,” the bank tweeted. With the IMF expected to release its funds soon, freeing up additional funding from other multilateral and bilateral creditors, Pakistan’s external sector is likely to perk up in the near term. Yet mounting political turmoil casts doubt on the government’s ability to make tough decisions in the future and tackle the economy’s long-standing structural problems responsible for the recurrent balance of payments crisis. Of late, global credit rating agencies such as Fitch and Moody’s have also highlighted the political risks to Pakistan’s ability to conduct credible policies. It will be a shame if the country strays from the stabilization path and fails to address structural barriers to exports and FDI because of the opportunistic policies currently witnessed.
Published in Dawn, July 29, 2022