Edi­tor’s Desk

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The Bal­ance of Pay­ments will collapse in the near fu­ture, say high-level sources. The sit­u­a­tion will be un­der tremen­dous pres­sure which is quite ex­plicit from the cur­rent ac­count deficit. The gov­ern­ment is con­sid­er­ing going back to the In­ter­na­tional Mon­e­tary Fund (IMF), how­ever, due to the fear of a se­vere po­lit­i­cal back­lash. It is look­ing for a face-sav­ing in this re­gard. Pak­istan’s BOP has been fac­ing a se­vere pres­sure for the last sev­eral years. But pri­mar­ily, with the help of IMF and nu­mer­ous other fac­tors, the gov­ern­ment has been able to sus­tain the pres­sure.

There are mainly five ways to avoid this im­pend­ing disaster:

Gov­ern­ment goes back to the IMF, although po­lit­i­cal reper­cus­sions are strong bar­rier for the gov­ern­ment in this re­gard. Es­tab­lish­ment of an Ex­port-Im­port Bank of China. The China-led Asia In­fra­struc­ture In­vest­ment Bank gives a loan to Pak­istan. Is­suance of Sukuk Bonds. Pri­vati­sa­tion of or­gan­i­sa­tions which the gov­ern­ment has long been plan­ning to ex­e­cute. This op­tion, how­ever, would not be vi­able for the gov­ern­ment to carry out at this point of time. This wors­en­ing of the BOP de­spite the fi­nance min­is­ter’s claims about Pak­istan’s suc­cess­ful com­ple­tion of IMF’s pro­gramme raises some big ques­tions on the so-called track of eco­nomic growth and devel­op­ment in Pak­istan.The sit­u­a­tion would arise since the for­eign re­serves are de­creas­ing along with for­eign di­rect in­vest­ment; while the gov­ern­ment, on the other hand, will have to pay back the debt. This would gen­er­ate re­pay­ments cri­sis, pri­mar­ily, be­cause of the se­vere short­age of for­eign ex­change. The State of Bank of Pak­istan (SBP) has said that while it ac­knowl­edges that the cur­rent ac­count deficit has in­creased sig­nif­i­cantly dur­ing Jul-Nov FY16-17, com­pared to the cor­re­spond­ing pe­riod of the pre­vi­ous year, the as­ser­tion that “Pak­istan’s bal­ance of pay­ments will be un­der tremen­dous pres­sure (al­most in a state of collapse)” is ex­ag­ger­ated and un­founded.

The con­tin­ued growth in re­mit­tances, a slow­down in im­ports, an uptick in ex­ports, and sig­nif­i­cant fi­nan­cial in­flows (both CPEC and non-CPEC) of­fer a very en­cour­ag­ing out­look on the coun­try’s bal­ance of pay­ment. In this con­text, the fol­low­ing points are worth not­ing The work­ers’ re­mit­tances, af­ter show­ing some slow­down in the first quar­ter of FY, ow­ing to sea­sonal fac­tors, have started show­ing a ris­ing trend in re­cent months. This en­cour­ag­ing trend is likely to gain fur­ther mo­men­tum, as the ini­ti­a­tion of in­fra­struc­ture projects in Saudi Ara­bia (un­der its vi­sion 2030), FIFA 2022 Foot­ball world Cup in Qatar, and Expo 2020 in Dubai would spur the de­mand for work­ers in the GCC coun­tries. The de­cline in ex­ports also ap­pears to have bot­tomed out. Fur­ther­more, the out­look is pos­i­tive as the re­cent re­cov­ery in global cot­ton yarn prices has in­creased the cost of pro­duc­tion for Pak­istan’s com­peti­tors (such as Viet­nam and Bangladesh) who rely on im­ported cot­ton yarn. Pak­istan, be­ing a large pro­ducer of cot­ton, can gain ad­van­tage in this sit­u­a­tion. The surge in im­ports came on the back of a high de­mand for ma­chin­ery, used in power and con­struc­tion sec­tors, for CPEC-re­lated projects. More im­por­tantly, the fi­nan­cial in­flows from China are avail­able to fund these ad­di­tional im­ports. CPEC projects are also ex­pected to im­prove Pak­istan’s soft im­age and turn it into a lu­cra­tive mar­ket for for­eign in­vest­ments from other coun­tries. A few in­stances al­ready ex­ist a Turk­ish firm (Arce­lik) has ac­quired Dawlance;

Re­nault – a French car man­u­fac­tur­ing com­pany – is ex­pected to start as­sem­bling cars in Pak­istan by 2018; and Pak-Suzuki Mo­tors (a Pak­istani af­fil­i­ate of Ja­panese au­tomaker Suzuki) plans to in­vest $460 mil­lion in Pak­istan to set up a sec­ond plant. Af­ter sta­bil­i­sa­tion, Pak­istan is in a growth phase. Largely, the in­crease in im­ports is at­trib­uted to cap­i­tal goods. Based on the fore­go­ing, cur­rent ac­count sit­u­a­tion must not be a se­ri­ous con­cern for the coun­try. How­ever, cen­tral rea­sons for all these crises is “con­stant de­crease in ex­ports and in­crease of im­ports, ex­pan­sion of cur­rent ac­count deficit and ab­sence of for­eign di­rect in­vest­ment,” says Sal­man Shah, for­mer eco­nomic ad­vi­sor in the Min­istry of Fi­nance. In re­sponse to what steps the gov­ern­ment should take in or­der to counter these chal­lenges, Dr Ash­faq Hasan Khan, a lead­ing econ­o­mist of Pak­istan, says “Gov­ern­ment should re­vise the over­val­u­a­tion of ex­change rates, hold­ing of re­funds and sense­less tax­a­tion that in­cludes in­crease of zero-rated taxes up to Rpc”. Ac­cord­ing to Dr Ash­faq “Gov­ern­ment should try to make their ex­porters com­pet­i­tive in the In­ter­na­tional mar­ket and must either de­crease the cost of pro­duc­tion or give them in­cen­tives through the ad­just­ment of ex­change rate”. The prime min­is­ter should di­rectly ne­go­ti­ate with the ex­porters on reg­u­lar ba­sis and must ad­dress their is­sues, he adds.

Sal­man Shah be­lieves that the mes­sage of good gov­er­nance should be given and the gov­ern­ment should stop ma­nip­u­lat­ing the econ­omy rather im­prove trans­parency and ex­e­cute tax re­forms. In the short run, he adds, Pak­istan can im­prove its po­si­tion in the Global Com­pet­i­tive In­dex and in Ease of Do­ing Busi­ness In­dex just with a stroke of pen re­forms — ad­just­ment of ex­change rate and through mak­ing our ex­ports com­pet­i­tive. Pak­istan is on 122nd po­si­tion over the for­mer while it lies at 144th in the lat­ter.

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