Current account deficit witnesses huge decline; PM Khan seeks ‘out-of-the-box solutions’ amid austerity; Economy remains a national security issue; Remittances is the ‘ATM card’
DESPARDES (Updated) — Pakistan’s current account deficit in the first quarter of current fiscal year (Jul 2019-Jun 2020) declined by a whopping 64 percent mainly on the back of a 21pct reduction in its imports bills amid ongoing austerity measures ‘to control unbridled spendings’ over a decade.
Over the years imports also surged, primarily as China Pakistan Economic Corridor’s early harvest projects kicked off and an uptick in imported luxury goods. At the same time, exports witnessed a downtick despite subsidies to stakeholders in the industrial sector’s traditional driver Textiles, which the incumbent government has been trying at the same time to boost with a massive Rupee devaluation.
The year-old PTI-led government on the onset had slapped a basket of imported items with duties and taxes.
‘Tough times ahead due to past loans and debt’, PM Khan told the nation in May.
With slowdown in economic growth (also an emerging global trend) and high inflation, reduced current account deficit (CAD) may just be a sliver on overall basis, despite being a positive omen for the government, some experts say.
The silver lining is focus on fiscal management– an area the incumbent government has prioritized post-IMF loan program deal. The $6 billion 3-yr loan includes other uncomfortable measures past governments have been stalling due to public pressures. Critics dub the IMF conditions as the “Egyptian Model”.
A defense and security expert in Pakistan says (on condition of anonymity) that there’s a “need for political will and relief to the common man”.
Economy is a national security issue, several observers and thought-leaders have been saying over the years.
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The Khan-led government was successful in bringing down the deficit from a historic high of $19.897bn in FY18 to $13.830bn in FY19.
But with a lackluster increase in exports, the Khan’s government may find it hard to meet the current account deficit– a view upheld by an independent expert.
Khan’s government has borrowed from the IMF (International Monetary Fund), the World Bank, the Asian Development Bank, commercial banks and other sources to meet the current account deficit, which could not be met despite overseas Pakistanis sending over $20bn in remittances each year. According to reports, remittances may cross $23 billion this year. That’s almost $2 billion each month in the coffer amid a cash-strapped situation.
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But the huge community of small traders and the auto industry feel the pinch– political rumblings notwithstanding.
Last month, PM Khan directed his finance team to come up with unconventional and out-of-box solutions for economic uplift and urged them to take all stakeholders on board.
Meanwhile, remittances continue to play crucial role, and will remain a stable source for balance of payments going forward.
