ISLAMABAD: Current account deficit would be a major challenge for Pakistan Muslim League (N) led coalition government in the weeks ahead and there is an urgent need to reduce imports by taking appropriate measures to avert balance of payment crisis.
This was stated by former Finance Minister Dr Hafeez Pasha while talking to Business Recorder on Wednesday.
Pasha further stated that there was no further space in the monetary policy to curb imports as maximum use had already been made following an increase in 250 basis point in the policy rate on 8 March, adding there was some positive impact of an increase in discount rate was evident on the exchange rate.
He also pointed out that increase in regulatory duties and cash margin failed to yield the desired result notably to reduce imports, therefore, the only option left was to bring about changes in basic structure of non- health non-education and non-food duties to reduce imports.
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He suggested that basic structure of duties falling in those categories was three percent which should be increased to five percent followed by those bracketed in 11 percent to 16 percent, 20 percent to 25 percent and 25 percent to 30 percent.
Increase in basic structure of duties will generate additional revenue and would subsequently help reduce budget deficit, Pasha said while cautioning that any delay in managing external account would have serious ramifications on foreign exchange reserves and might compound the balance of payment crisis.
Pasha acknowledged that reduction in basic structure might not be easy for a coalition government of more than eleven political parties, therefore, the decision making would be dependent entirely on the timeframe of the decision and whether assemblies would complete their tenure or if elections were held in the next few months.
He said the country would require a new International Monetary Fund (IMF) programme for balance of payment support and the government would be required to take some tough decisions and if elections were held after few months the present government would not be in a position to take politically challenging decisions.
Copyright Business Recorder, 2022
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