EDITORIAL: Pakistan’s current account surplus for the first four months of the current year was 218 million dollars — an achievement by all counts. However, within a macroeconomic context, it is critical to determine the factors behind this improvement and their sustainability.
One reason is the fact that remittances improved dramatically each month this fiscal year compared to the comparable month the year before – 47.6 percent in July, 40.56 percent in August, 29.5 percent in September and 23.9 percent in August.
Two observations are in order: (i) Ishaq Dar’s economically deeply flawed policy to artificially control the rupee-dollar parity when reserves were less than two weeks of imports, effective from 1 October 2022 to end June 2023 when the Stand-By Arrangement was signed with the International Monetary Fund, cost the economy 4 billion dollars in lost remittance inflows due to the prevalence of multiple exchange rates.
To lure remitters to use official channels again took a few months, which accounts for the slower rise last fiscal year to a steeper rise in the current year; (ii) the percentage rise is however coming down each month, which indicates that not only has a ceiling been reached, but economists point to the resilience of the rupee vis-a-vis the dollar the day after Donald Trump won the US presidential elections when all major currencies fell against the dollar which may have been one reason why the IMF mission visited Pakistan five days later on 11 November.
The trade deficit narrowed from 7,387 million dollars July-October 2023 to 7,083 million dollars in the same period this year and this in spite of a rise in imports from 16,977 million dollars July-October 2023 to 17,972 million dollars this year or a rise of 995 million dollars.
Exports rose from 9,590 million dollars July-October 2023 to 10,889 million dollars in the comparable period this year or a rise of 1,399 million dollars. Or the rise in imports was 71 percent of the rise in exports – a condition that would be a function of the international prices of oil, Pakistan’s major import item, a rise in the international prices of our export items, which remain largely traditional and consumer-based, and the further loosening of administrative measures to contain imports.
However, import restrictions through administrative measures remained in place including delay in opening of letters of credit (which is reportedly continuing on non-essential imports) as well as what has been acknowledged in the IMF’s staff-level report dated October 2024, which states that the shortening of the period for repatriation of export proceeds is appropriate in view of the fragile external conditions. However, these measures are contrary to IMF standard conditions and hence expected to be of limited duration.
Foreign Direct Investment inflows rose by 32 percent to 904.3 million dollars in July-October 2024 against 683.5 million dollars in the comparable period last year, or a rise of 220.8 million dollars. However, outflows increased by 374.3 million dollars – from 868.2 million dollars July-October 2023 as opposed to 1242.5 million dollars in the same period this year. Portfolio investment inflows continue to decline in spite of the 15 percent discount rate, reflective of global perception of our market.
To conclude, given that market perception is a key component of the way markets operate presenting data that reflects improved performance is a conscious policy decision adopted by most governments; however, where such claims are so patently contrary to available data from other government sources it maybe a wiser approach to desist from making claims that can be so easily and effectively challenged and instead to focus on formulating homegrown policies that can increase our leverage with lenders, policies that disturbingly do not appear to be in the works.
Copyright Business Recorder, 2024
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