Govt facing pressure on external sector amid claims of economic stability

ISLAMABAD – Despite making tall claims of achieving economic stability, the PTI government is facing pressure on the external sector that is likely to result in a higher than projected current account deficit in current fiscal year.

The government, which was celebrating the surplus current account few months back, is now facing pressure in controlling the deficit – the gap between country’s higher foreign expenditures and sluggish income. Independent economists believed that government might face the similar situation that PML-N government faced in its last year of the five years constitutional tenure when current account deficit swelled to around $20 billion.

An official of the ministry of finance admitted that current account deficit is posing a major threat for the economy. However, he said that situation of external situation is manageable. The imports are increasing due to higher prices of food commodities in international market. “The government has decided to control the imports,” he said and added that Finance Minister Shaukat Tarin already announced to impose regulatory duties and 100 percent cash payments for opening of letters of credit for non-essential luxury imports. “It will help in controlling the imports.

Former Special Assistant to the Prime Minister on Finance and Revenue Dr Waqar Masood, who left Imran Khan’s cabinet few weeks before, has projected Pakistan’s current account deficit at $12 billion to $17 billion for the current financial year 2021-22. Dr Waqar’s estimates are far higher than the State Bank of Pakistan (SBP). The SBP has projected current account deficit this year that is 2-3% of the Gross Domestic Product, which is roughly $6.5-9.5 billion.

The latest data showed that cumulative current account deficit for the first two months (July and August) of current fiscal year 2021-22 was recorded at $2.29 billion compared to a surplus of $838 million in the same period of last year. The country’s imports are increasing at fast rate as against the exports, which are putting pressure on the current account deficit. Imports totaled $12.168 billion in first two months (July – August) of current fiscal year as against $ 6.990 billion during the corresponding period of last year showing an increase of 74.08 percent. However, exports had shown growth of 27.99 percent. Exports during July – August 2021 were recorded at $ 4.587 billion as against$3.584 billion during the corresponding period of last year.

Imports are likely to further increase in the months to come due to import of Covid-19 vaccines, impact of currency depreciation, higher prices of food commodities like wheat, palm oil and sugar in international market. The government is hoping that foreign remittances increase in current fiscal year as like previous year. Remittances rose to a historic high of $29.4 billion in previous fiscal year. This helped improve the country’s external sector position despite the challenging global economic conditions in the past year.

The SBP in its monetary policy noted that the current account deficit rose to $0.8 billion in July and $1.5 billion in August, reflecting both vigorous domestic demand and high global commodity prices. It has observed that while the flexible exchange rate has appropriately played its role as a shock absorber, it is important that its role be complemented by strong exports, targeted measures to curb non-essential imports, and appropriate macroeconomic policy settings to contain import growth.

Article source: https://nation.com.pk/24-Sep-2021/govt-facing-pressure-on-external-sector-amid-claims-of-economic-stability