Cur­rent ac­count woes

The Pak Banker - - FRONT PAGE -

Ac­cord­ing to the lat­est re­ports, the gov­ern­ment has de­cided to bor­row seven bil­lion dol­lars dur­ing the re­main­ing months of the cur­rent fis­cal year to bridge the widen­ing cur­rent ac­count deficit. This was re­vealed by a se­nior Fi­nance Min­istry of­fi­cial dur­ing a meet­ing of Na­tional Assem­bly's Stand­ing Com­mit­tee on Fi­nance. As per the of­fi­cial's state­ment, "we are in a two-way cri­sis, cur­rent ac­count deficit as well as debt is increasing." The lat­est data from the Fed­eral Board of Rev­enue (FBR) shows that the Ju­lyFe­bru­ary 2017-18 rev­enue col­lec­tion in­creased by 17.65 per­cent against the tar­get of 19 per­cent. It is un­clear whether the Fi­nance Min­istry had in­cluded the FBR short­fall while es­ti­mat­ing the quan­tum of re­liance on bor­row­ing for the re­main­ing four months of the cur­rent fis­cal year; and if not then ac­tual bor­row­ing would be higher by around 2 bil­lion dol­lars.

The State Bank of Pak­istan (SBP) in a state­ment has main­tained that the coun­try's fi­nanc­ing re­quire­ments for the entire year would be be­tween 15.5 bil­lion dol­lars and 17 bil­lion dol­lars. Ac­cord­ing to the SBP, "we are go­ing to peak in the cur­rent fis­cal year but things will ease from the next fis­cal year with a slow­down in the China Pak­istan Eco­nomic Cor­ri­dor (CPEC)-re­lated im­ports".

The ad­mis­sion of how the widen­ing cur­rent ac­count deficit would be plugged openly chal­lenges the nar­ra­tive of the PML-N gov­ern­ment no­tably that growth mo­men­tum, backed by in­fra­struc­ture de­vel­op­ment projects under the aegis of the CPEC, as well as adept han­dling of the macroe­con­omy has led to sta­bi­liza­tion of the econ­omy.

Dur­ing the past two to three years, ex­ports have been de­clin­ing, at­trib­uted to an over­val­ued ru­pee that made our prod­ucts un­com­pet­i­tive in the in­ter­na­tional mar­ket, and in­or­di­nate de­lays in sales tax re­funds with the ob­jec­tive of ar­ti­fi­cially shoring up rev­enue col­lec­tion which neg­a­tively im­pacted on the liq­uid­ity needs of the ex­porters com­pelling them to bor­row from the banks at rates that again made their prod­ucts un­com­pet­i­tive; while im­ports have been ris­ing with tar­iff con­ces­sions ex­tended to Chi­nese com­pa­nies en­gaged in CPEC projects. The gov­ern­ment's claim that cap­i­tal im­ports have risen which, would in time, fuel the growth rate is not backed by data on the SBP web­site that shows a rise in im­port of fuel as well as trans­port equip­ment far out­pac­ing a rise in ma­chin­ery im­ports.

Re­mit­tances have been ris­ing but are not enough to bridge the widen­ing gap be­tween ex­ports and im­ports. How­ever, one would as­sume that the Fi­nance Min­istry must be se­ri­ously con­cerned about the coun­try be­ing placed on the grey list by Fi­nan­cial Ac­tion Task Force (FATF) in June this year, a place­ment which would surely have im­pli­ca­tions on re­mit­tances as they are chan­neled through the Swift net­work op­er­ated from the US, a coun­try that the Ad­vi­sor to the Prime Min­is­ter on Fi­nance, Rev­enue and Eco­nomic Af­fairs re­vealed had spear­headed the move to place Pak­istan on the grey list. In other words, one may ex­pect de­lays in re­mit­tance in­flows and an over­all de­cline is a dis­tinct pos­si­bil­ity.

If placed on the FATF, Pak­istan would have dif­fi­culty in pay­ing in­ter­est as well as prin­ci­pal when due on for­eign loans. The gov­ern­ment is con­sid­er­ing is­su­ing global bonds. How­ever, these bonds, de­fined as debt eq­uity, would prob­a­bly be at high rates of re­turn given the ex­pec­ta­tion of be­ing placed on the grey list by FATF in June. In view of the grav­ity of the sit­u­a­tion, it is im­per­a­tive that a com­pre­hen­sive strat­egy be for­mu­lated in con­sul­ta­tion with all stake­hold­ers to en­sure that the coun­try meets the chal­lenge ahead in the best pos­si­ble man­ner.

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