The Friends of Economic and Business Reforms (FEBR) has appreciated the government’s efforts to narrow down current account deficit but warned the authorities that balance of accounts should not be at the cost of local industry’s growth.
FEBR President Kashif Anwar, in a statement issued here on Sunday, said that current account deficit reduced to $1.821 billion in July-November FY20, from $6.733 billion a year earlier due to huge fall in imports while exports posted a marginal growth. The government strict import policy along with high cost of doing business owing to multiple raises in fuel cost and energy tariffs have almost halted the industrial production, he added.
The current account deficit reduction should be based on growth in exports, resulting into growth in industrial production as well as employment generation.
But unfortunately the present turnaround is largely due to the fall in imports that has accompanied sharp slowdown in growth after the currency devaluation and gradual increase in interest rates, which sent shockwaves through the economy. The industry raw material which is not manufactured in Pakistan has also included in list of high import duties.
It is good that the current account deficit narrowed 80% to a 41-month low at $259 million in September last but it also came at the cost of country’s economic growth. The deficit stood at $1.27 billion in the same month of last year.
Kashif Anwar observed that the measures taken by the central bank to aggressively cut unwanted imports through a significant hike in the benchmark interest rate and attempts to revive exports and earn higher remittances through rupee depreciation helped bring down the current account deficit. The measures, however, have adversely impacted the growth of gross domestic product (GDP) at the same time, he added.
He said that for the first time in 10 years, the growth in large-scale manufacturing (LSM) industries contracted over 3.6% in the last fiscal year ended June 2019 after almost all major sectors recorded reduction in their output, deepening concern about a protracted economic slowdown and a high unemployment rate.
FEBR President said that the government would have to fix structural issues in the economy once and for all. We have to increase exports on a sustainable basis, create import substitutes to make a permanent reduction in imports, attract higher remittances and bring foreign direct investment (FDI) in different projects to have a sustainable current account balance,” he said.
Foreign direct investment into Pakistan also surged 78 percent to $849 million in July-November FY20, while portfolio flows stood at $1.2 billion, which is a good news for the country, he added.
FEBR appreciates that the government was successful in bringing down the deficit from a historic high of $19.897 billion in FY18 to $13.830 billion in FY19.
“On one hand, this massive decline has helped government reduce the current account deficit, whereas on the other, it has also slowed down the overall economic activity in the country.”
The data showed the large decline in imports was the real force behind the 64 percent reduction in the deficit whereas, exports of goods and services during the quarter increased by a meagre 1.38 percent or $99 million. The exports services during the quarter clocked in at $7.259 billion compared to $7.160 billion in the same period last fiscal year.
Kashif Anwar said that the reduced current account deficit is a positive omen for the government, which is struggling with slow economic growth and high inflation.—INP