Export or expire: there’s no other way to break the deficit cycle

LAHORE: The current account deficit has definitely declined appreciably during the first seven months of this government but the way our exports are performing we would never be able to narrow the trade gap by curbing imports only.

More than ever, a quantum leap in exports is what Pakistan has always been in need of. The policymakers should brainstorm on how to hook up with the global value chains that see almost two-thirds of the world’s production. Getting along with these supply chains is one of the sure shot ways to give a much-needed boost export proceeds, efficiency, and growth.

Pakistan’s current account deficit narrowed 16.79 percent to $8.424 billion during the first seven months of the current fiscal year of 2018/19. The deficit shrunk $1.7 billion from $10.124 billion during the corresponding period a year earlier. In January, current account deficit sharply fell 47.6 percent year-on-year to $809 million.

While trade deficit narrowed 9.66 percent to $19.264 billion in July to January with imports decreasing 5.17 percent and exports increasing 2.24 percent.

The high dollar value, regulatory duties on luxury items coupled with stagnant economy and declining incomes has shaved off most of the unnecessary imports. But let us be realistic that some necessary imports have also dipped appreciably that would hurt our growth down the line.

The overall decline in imports during July-February was 6.03 percent. The decline in food group imports was 8.25 percent, mainly because of regulatory duty and high dollar rate. However, the decline in machinery exports by 20.55 percent in the last eight months is worrisome. The manufacturing sector in Pakistan is already shrinking as it is already losing markets because of old technologies. The exports would push up if we upgrade our technologies. The declining machine import indicates that we have not yet started the modernization process.

Textile machinery imports were down by 11.52 percent. Our current spindles are power guzzlers we need to replace them with efficient ones. Textiles are our major export sector and recent facilitations were specifically given to this sector. If it fails to upgrade we should say good bye to increase in exports.

The import of construction machinery was another causality of drop in imports. The import dip in this sector was 22.21 percent. We need to accelerate construction activities to ensure sustained growth and employment.

This sector is under the cloud since the start of this fiscal and has shed over a million jobs. This will also impact overall growth. Then the imports of electrical equipment and apparatus were also lower by over 18 percent. This certainly means that the economic progress has come to a standstill.

We cannot rejoice the decline in current account deficit if it is at the cost of economic growth. The declines in imported food and luxury goods should be welcomed but decline in machinery and transport puts brakes on our progress towards sustainable growth. The government should probe why the investments in these sectors have declined instead of increasing. In the transport sector where the decline was over 30 percent the decrease in road motor vehicles (building) and buses, trucks, and other heavy vehicles should be a matter of grave concern for the policymakers.

But the decline in import of completely build up units and motor cars should be a matter of rejoice.

The economic planners should revisit their policies and ensure that local investors get the confidence to invest in greenfield projects.

The policy of guaranteed rate of return on investment so frequently offered to foreign investors should be stopped forthwith. They should also devise policies that ensure the stability of rupee. Unstable currency is a major impediment in investment.

The major contribution in reduction of current account deficit came from remittances that are $1.2 billion higher than the corresponding period last year. The imports though declined by $3.6 billion include over $1.5 billion of machinery and transport imports. The exports merely increased by $277 million during first eight months of this fiscal.

Situation at hand leaves Pakistan with choice other than zooming in on increasing exports by taking an aim at the large global markets. This can be achieved through encouraging size as well as scale, introducing pro-business policies, promoting investor-friendly culture, and making necessary adjustments to meet the global standards.

Only after transforming into an export-centric economy can Pakistan put itself on a path of sustainable long-term growth; however, with a current account deficit that big, it will take a mammoth conviction for the economic managers to take measures that work.