Govt deploys contingency plans to revive external position

ISLAMABAD: Economic managers have swung into action to avert an impending balance of payment crisis and sustain the economic achievements made during the last four years, officials said on Saturday. 

The official said the government is preparing short- to medium-term contingency plans to cope up with the arising situation on the external account front. 

The official said the plan of action is under consideration and efforts would be made to save hard-earned macroeconomic gains achieved by the county after taking tough actions under the last International Monetary Fund (IMF) loan programme. 

For the first time the size of the economy has surpassed $300 billion. On average, income of each Pakistani has increased 22 percent since the fiscal year 2012/13. Per capita income stands at $1,629 as compared to $1,334 four years ago. Inflation was on average 12 percent between 2008 and 2013. The inflation has been contained at 4.16 percent. Policy rate of the State Bank of Pakistan (SBP) came down to the current 45-year low of 5.75 percent from 9.5 percent in June 2013. The growth hit a decade high of 5.2 percent during the last fiscal year. 

The foreign currency reserves have, however, started depleting owing to growing pressures on external account mainly because of increasing imports and decreasing exports. 

SBP’s foreign exchange reserves dropped to $14.3 billion during the week ended August 11, equivalent to less than three months of imports. The country’s total foreign liquid reserves fell to $19.941 billion during the last week from $20 billion a week earlier. Foreign exchange reserves of banks stood at $5.631 billion.

Analysts said if foreign currency reserves are not maintained to meet three-month imports bill then international lenders might suspend program loans for Pakistan. 

However, it is yet to be seen whether a weak government will be able to effectively execute its plans during the last few months to the completion of its tenure. 

Since the ouster of prime minister Nawaz Sharif by the Supreme Court in the Panama case, political temperature is rising and economic managers are firefighting to keep up the economic gains.

It’s yet to be known whether Finance Minister Ishaq Dar can focus with full energy to steer the economy out of the existing external account’s morass as his powers have massively been clubbed by taking away from him the chairmanship of the economic coordination committee and excluding him from the cabinet committee on privatisation. 

The finance minister is also facing National Accountability Bureau references.

If the plans fail the government needs to again knock the door of the IMF as a lender of last resort. 

“We need immediate plan of action in order to avert balance of payment crisis, which will take few months as the foreign reserves are depleting at an accelerated speed,” said an official.

The current account deficit stood at $12 billion during the last fiscal year of 2016/17 and the finance ministry asked the Planning Commission to project it at $10 billion for the current fiscal year. The commission high-ups agreed to reduce projection on current account deficit when the former prime minister Nawaz Sharif had instructed it during a meeting of the National Economic Council.

An economist said there is need to take actions on immediate basis. “The sooner they take actions the better would be the results otherwise this situation might go out of control exactly at a time of general elections next year with no other option but to seek another bailout package from the IMF.”