Analysts are appalled over the persistently widening current account deficit (CAD) that touched a staggering near $8 billion-mark in the first half of the current fiscal. One of the contributing reasons of this yawn are Pakistan Tehreek-e-Insaf- (PTI) led regime’s indecisiveness, hit-or-miss strategies and half-baked economic firefighting feared to set off a full-blown balance of payment crisis within next few months.
Analysts are appalled over the persistently widening current account deficit (CAD) that touched a staggering near $8 billion-mark in the first half of the current fiscal. One of the contributing reasons of this yawn are Pakistan Tehreek-e-Insaf- (PTI) led regime’s indecisiveness, hit-or-miss strategies and half-baked economic firefighting feared to set off a full-blown balance of payment crisis within next few months.
Some top officials who are dealing with the economy conceded in background discussions that the situation might go out of control in two to three months as Finance Minister Asad Umar has remained unable to understand the looming liquidity crunch knocking on our doors on the external fronts.
With the existing pace of the widening of current account deficit and upcoming heavy repayment requirement in April on bonds’ front, the potential risk exists that the government will have to take more serious steps to increase its dwindling foreign currency reserves. Otherwise speculations might grip the country giving rise to a situation that must be averted at all costs.
But sitting idle without having any roadmap and clarity might aggravate our crisis.
All projections made by Finance Ministry for containing CAD in the range of $12 billion must be thrown into out of the window as State Bank of Pakistan’s (SBP) data showed the deficit at $7.983 billion in the first six months of 2018/19, compared with $8.353 billion in the corresponding period last year. The CAD had peaked to over $18 billion in the last whole financial year 2017-18.
Insiders of the economic ministries believed that differences of data on trade front between Pakistan Bureau of Statistics (PBS) and central bank were in the process of reconciliation in gradual manner as the SBP was allowing insertion of imports from China in the range of $200 to $300 million in a phased manner. That’s why the current account deficit was not showing improvement which many were expecting to see after 40 percent devaluation, contraction of imports, and some steps taken by the government in last few months to boost exports.
The CAD widened 37 percent to $1.66 billion in December 2018, mainly because of unwanted growth in imports and less-than-desired rise in exports. The remittances are showing steady trends but there are increasing difficulties because of economic slowdown in the Gulf region.
The real problem lies on fiscal front of the economy. The prime reason of which is increasing tax shortfall faced by the Federal Board of Revenue (FBR) in the first half of the current fiscal year. The shortfall stood at Rs158 billion and it could go up to Rs300 to Rs350 billion till the end of this fiscal, having one-percent-of-GDP effect on yawning budget deficit.
The budget deficit has sharply risen to 2.8 percent of the GDP in the first half of the current fiscal year during the PTI regime against 2.2 percent of the GDP in the same period last financial year, when Pakistan Muslim League (PML-N) was in power. The budget deficit hiked to 6.6 percent of the GDP in the last fiscal year and where it goes this fiscal is yet to be seen.
The government is set to unveil its second mini-budget this week on January 23. It indicates the PTI has not completed his homework, while presenting the first mini budget in September last after coming into power. The upcoming mini budget aims at curtailing the budget deficit at 5.6 percent of the GDP for the current fiscal year against earlier envisaged target of 5.1 percent.
A widening budget deficit increases also mounts pressure on external accounts. Given the situation, the governments’ expectation of curtailing imports is highly likely to remain a far cry this fiscal.
On other hand, the Ministry of Finance under the incumbent regime has prepared highly overambitious macroeconomic framework, which will be unveiled along with the coming mini-budget before the parliament.
Dr Hafiz Pasha, ace economist and former finance minister, said this macroeconomic framework was inconsistent and highly flawed and greatly disappointing. “The country was heading towards eruption of crisis on external accounts within five months with the existing non-serious attitude of the government on the economic front,” Dr Pasha warned.
Pakistan’s budget deficit could be divided into 40:60 ratios in first and second half of any fiscal year keeping in view the fiscal data of last two decades. For instance the budget deficit stood at 2.2 percent of the GDP in first half of the last fiscal year (2017-18) and then hiked to 6.6 percent in the whole fiscal.
It goes without knowing as to how the PTI-led government will be able to restrict the budget deficit within desired limit of 5.6 percent of the GDP till June 30, 2019 when it had already touched 2.8 percent in the first half of the current fiscal year.
The government desires to bring the budget deficit down to 4 percent of the GDP in five year tenure of the PTI led regime till 2022-23.
The yawning budget deficit will put pressure on increasing debt burden and this vicious cycle is bound to impact the economy in negative manner in months and years to come.
Without domestic resource mobilisation and tackling underlying structural problems, Pakistan’s economic problems could not be overcome in the medium- to long-term basis. The prescription of increasing tax rates will not solve the problems but the government’s seriousness towards broadening the narrowed tax base will.
The writer is a staff member
