A weak­en­ing econ­omy

The Pak Banker - - FRONT PAGE -

As per the Pak­istan Bureau of Statis­tics data, dur­ing FY08, the fi­nal year of the PML-Q gov­ern­ment, the cur­rent ac­count deficit shot up to $14.1 bil­lion (8.2% of gross do­mes­tic prod­uct - GDP) from $6.87 bil­lion (4.8% of GDP) as trade deficit in­creased to $20.91 bil­lion (12.3% of GDP) from $13.56 bil­lion (8.9% of GDP).The ru­pee-dol­lar par­ity, which re­mained rel­a­tively sta­ble at about 60 in first four years of the gov­ern­ment, in­creased to 68.3 by the close of FY08. For­eign ex­change re­serves fell to $11.28 bil­lion at the end of FY08 from $15.18 bil­lion in one year.In Oc­to­ber 2008, a pre­car­i­ous BoP po­si­tion forced the new gov­ern­ment to sign a $7.6-bil­lion loan agree­ment, which later was en­hanced to $11.3 bil­lion, with the IMF.Like­wise, in Septem­ber 2013, an­other agree­ment with the IMF was struck for $6.12-bil­lion as­sis­tance by the PML-N gov­ern­ment within three months of tak­ing of­fice.

His­tory seems to be re­peat­ing it­self. In the first nine months of the cur­rent fis­cal year (July-March FY18), $12.46-bil­lion cur­rent ac­count deficit was reg­is­tered com­pared with $8.35 bil­lion recorded in the cor­re­spond­ing pe­riod of FY17, a rise of 49.22%.The cur­rent ac­count deficit in­cluded $22.30 bil­lion in trade deficit com­pared with $18.47 bil­lion deficit recorded in July-March FY17, which rep­re­sented 20.68% growth.In its re­port on Pak­istan's econ­omy re­leased in March 2018, the IMF pro­jected $15.7 bil­lion (4.8% of GDP) of cur­rent ac­count deficit for the full fi­nan­cial year. It fore­cast 10% ex­port growth and 10.2% im­port growth, which would take ex­ports to $22.46 bil­lion and im­ports to $58.22 bil­lion, thus re­sult­ing in $35.76-bil­lion trade deficit.How­ever, the Ju­lyMarch FY18 data sug­gests that the IMF has un­der­es­ti­mated the size of cur­rent ac­count and trade deficits. Based on GDP growth of 5.8%, as fore­cast by the gov­ern­ment for FY18, the pro­jected GDP size for the out­go­ing fis­cal year is $322.65 bil­lion (FY17 GDP was $304.97 bil­lion).Ac­cord­ingly, at the cur­rent growth pace, the cur­rent ac­count and trade deficits for FY18 will reach $19.59 bil­lion (6.07% of GDP) and $39.32 bil­lion (12.18% of GDP) re­spec­tively.

In FY17, the cur­rent ac­count deficit was $13.13 bil­lion or 4.1% of GDP while trade deficit was $32.58 bil­lion or $10.68% of GDP. As per lat­est data re­leased by the PBS, dur­ing FY18 (July-April), ex­ports grew 13.67% to reach $19.2 bil­lion while im­ports grew 14.04% to reach $49.41 bil­lion, re­sult­ing in $30.21-bil­lion trade deficit. At these rates of growth, the FY18 will end up with $37.22bil­lion trade deficit ($23.42 bil­lion of ex­ports and $60.47 bil­lion of im­ports), which will ac­count for 11.53% of GDP. The wors­en­ing cur­rent ac­count bal­ance has taken its toll on the ex­change rate sta­bil­ity and for­eign ex­change re­serves. To ease the pres­sure, the gov­ern­ment has to rely mainly on debt-cre­at­ing in­stru­ments, such as sale of bonds and com­mer­cial loans, on which in­ter­est rate is rel­a­tively high. Pub­lic ex­ter­nal debt, which was $64.48 bil­lion at the close of 2016, had gone up to $73.72 bil­lion at the end of 2017.

In the first seven months of FY18, the gov­ern­ment bor­rowed $6.6 bil­lion. In 2018, Pak­istan will start re­pay­ing the $6.12-bil­lion IMF loan, which would put fur­ther pres­sure on the BoP po­si­tion.The FY19 bud­get has al­lo­cated Rs803.98 bil­lion ($7.22 bil­lion at an ex­change rate of Rs115 per dol­lar) for the pay­ment of prin­ci­pal and in­ter­est on for­eign loans.A sub­stan­tial in­crease in both ex­ports and FDI is the key to re­duc­ing the ex­ter­nal ac­count deficit. How­ever, it re­mains to be seen how the gov­ern­ment tack­les the sit­u­a­tion.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.