Hollow rhetoric and imaginative narrative about achieving the set target has been the glaring trait of governments’ public relation exercise to hoodwink the public opinion. But the vibrant media is disseminating so much information and knowledge that the people can differentiate between facts and fudged data. But still the self deceiving factor refuses to go away. The finance ministry is predicting a negligible current account deficit at the end of the tenure of Pakistan Tehrik-i-Insaf government, which will require rapid induction of advanced technologies in the industrial sector; making economic environment favourable with tax and tariff reforms; reducing energy inputs tariffs; and 100 percent increase in savings rate. The assumption of reducing the current account deficit appears highly unrealistic.
The ministry of finance discussed on Thursday its macro economic projections with key stake holders, including the State Bank of Pakistan (SBP), Minister for Planning and Development and Minister for Water and Power. The projections are part of macroeconomic framework draft that Finance Minster Asad Umar wants to unveil on January 23.These apparently unrealistic assumptions were made the day when SBP reported that current account deficit shrank only 4.4 percent or $7.98 billion, driven by fourth quarter of decline. The current account deficit in December alone was $1.66 billion, was nearly $500 million higher than the ministry’s own estimates.
The finance ministry wants to contain the current account deficit 0.2 percent of the gross domestic product (GDP) by 2922-23. However, this would require the current 10 percent saving rate of GDP to nearly 20 percent by 2023. The investment will remain below the 20 percent of the GDP due to the fact that finance ministry has projected 6 percent economic growth rate for the fiscal year 2022-23. The doubling of the saving rate without increasing the investment would lead to a situation where even the economic growth rate of 6 percent would not be unattainable. This means PTI government would be unable to create 10 million jobs. Minister for Planning and development Makhdum Khusro Bakhtiar tole journalists on Wednesday that creating 10 million jobs would require at least 7 percent economic growth rate by 2023. Prominent economist Dr. Hafeez Pasha also declared the finance ministry economic frame work unrealistic after reviewing it last week.
The finance ministry did not allow senior officials of the planning ministry in the meeting to give technical advice to their minster. Against the finance ministry desire to contain trade deficit by 0.5 percentage of GDP by 2023, the planning ministry was projecting a current account deficit around 2.5 percent of the GDP. This was due to fact that planning ministry expects an average economic growth rate of 5.8 percent for the next few years and final year target of 7 percent. The ministry of finance believes that stabilization measures would soon start giving results. There is still no decision whether government should continue with stabalisations measures or go for measures to boost economic growth rate. During the first five months, the large scale manufacturing sector faced nearly 1 percent contraction. The factors that may be responsible for it include increase in the prices of raw material and intermediate goods due to currency depreciation and sky high power tariff.
The current account deficit lies at the heart of economy’s difficulties since it is primarily responsible for devouring foreign exchange reserves that have dropped to slightly more than a month’s export cover since hitting a peak of five months import cover in October 2016. Last year the current account deficit hit a record high of $18.96 billion, implying a loss of reserves at roughly $1.5 billion per month. The improvement in the current account deficit owes itself to $1 billion rise in workers’ remittances and not increase in country’s exports. All other indicators—exports, imports and overall balance of trade—remained more or less static. Contrary to the data of Pakistan Bureau of Statistics (PBS) released last week the data of SBP read out that trade deficit showed no change from last year in July-December period. Last week PBS data had showed a five percent fall in the trade deficit. But on a month-on-month basis, the current account deficit during December, 2018 increased by 37.3 percent amounting $1.6 billion compared to 1.2 billion in November, 2018.
The government has to facilitate the exporters to target new markets for exporting primary commodities and finished goods. China has shown interest in importing wheat flour potatoes and citrus fruits. Philippine is keen in importing Kinno. The business leaders of Lahore Chamber of Commerce lamented the continuous fall of exports to Malaysia despite the free trade agreement. In 2014 Pakistan’s exports to Malaysia were worth $234 million which fell to $186 million and $152 million in the next two years. Malaysia wants Pakistan import of red meat to its $2 billion wheat market. A long tern trade policy envisaging exploration of new markets and facilitating exports primary commodities and value added items can help reduce the current account deficit.
