FeaturedNationalVOLUME 17 ISSUE # 40

Economic firefighting

The government claims to have stabilised the economy. The rupee is becoming stronger against the US dollar after massive depreciation in a few months. There is optimism in the air about the economy after the possible revival of the International Monetary Fund package. However, the ground reality shows the situation may not last longer, as happened in the past governments because all of them took cosmetic measures instead of reforming the economy on a permanent basis.

It is a fact that long-term economic stability needs persistent efforts and the continuation of “harsh” policies. However, successive governments failed to look beyond their immediate political gains. They took some corrective measures in the first few years of their rule but later overturned them as elections drew nearer. In the process, the country has suffered badly.

Political stability is also vital to attain economic prosperity. But Pakistan has lacked it for decades. The economic situation is expected to worsen in the weeks to come as former Prime Minister Imran Khan has announced a movement to press the government for early polls. His government had also faced the same situation.

It is encouraging that the rupee surged by 11pc in August to 213.87 per dollar, the biggest gainer in the world. The benchmark stock index climbed by 9pc, the top performer in Asia after Sri Lanka. However, Pakistan’s exports and remittances have started declining again. The exports in July declined by 24pc on by over $700 million as compared to exports registered in June 2022. Pakistan’s all economic problems emanate from its inability to earn enough dollars to meet its internal and external needs and for it, the country has to modernise and diversify its exports, which needs dedicated efforts for decades. Too much reliance on textiles and remittances has also proved to be counterproductive.

According to data released by the Pakistan Bureau of Statistics, exports in July were recorded at $2.2 billion against $2.9 billion in June 2022. On a year-on-year basis, exports declined by 0.5pc and totaled $2.219 billion in July 2022, compared to $2.340 billion in July 2021. However, the country’s imports also decreased to $4.8 billion in July, compared to the import bill of around $7.8 billion in June. Pakistan’s imports on a month-on-month basis declined by 38.3pc in July as they remained $4.86 billion, compared to $7.880 billion in June. According to the official data, the country’s trade deficit narrowed by 18.33pc in July on a year-on-year basis and remained at $2.64 billion, compared to $3.23 billion in July 2021. Imports declined by 12.8pc on a YoY basis in July and remained $4.8 billion as compared to $5.5 billion in July 2021. Pakistan’s trade deficit nearly halved in July to $2.6 billion after the government’s clampdown on the outflow of dollars paid dividends and the country saw an over $3 billion reduction in the import bill. It was the lowest gap in the past one and a half years. The trade deficit came in at $2.64 billion in July, down by 47pc, or $2.32 billion, on a month-on-month basis, reported the Pakistan Bureau of Statistics (PBS). On a month-on-month basis, exports fell by one fourth to $2.2 billion in July over the preceding month, showing a dip of $700 million. The past PTI government had also curtailed the deficit by restricting imports but it lifted the control in its third and final year, which led the deficit to an unprecedented level in the last fiscal year.

The federal government and the State Bank of Pakistan (SBP) have taken administrative measures to clamp down on imports. The federal government’s import ban had largely proved ineffective but the SBP’s vetting of almost every letter of credit, introduction of import quotas and even restricting imports through open accounts helped slash the import bill. The decision to increase petroleum product prices also helped reduce consumption and the import bill.

The rising trend of remittances also reversed in July with a decline of 7.8pc as compared to the same month of the previous fiscal year. The country received $2.523 billion in July compared to $2.736b in July FY22, the SBP reported. The country received over $31bn in remittances in the previous fiscal year, a record high.

Pakistan’s reliance on remittances for its foreign exchange has been increasing each year, despite record inflows and record exports in FY22. Even this large amount of remittances, about $31b in FY22, could not bridge the trade gap, resulting in the huge current account deficit.

Like past governments, the coalition government also brought its first mini-budget, announcing fresh revenue measures of more than Rs50 billion and lifted a ban on all non-essential, or luxury, imports to meet yet another demand of the International Monetary Fund (IMF) before it clears Pakistan’s bailout package. Finance Minister Miftah Ismail said Rs36bn worth of additional tax had been imposed on cigarettes and tobacco and about Rs14b would come from changes in the retailers’ tax regime. However, proposed tax relief measures for real estate, capital markets and banks have been postponed.

Successive governments have announced incentives for different sectors but the common people feel neglected. They have been overburdened with high prices of all essentials. Shopkeepers are overcharging at their will, but there is no mechanism by the government to check them. Even staunch supporters of the government find it difficult to defend it. The government should take measures to bring down prices of essential food items to mitigate their sufferings.