Current account deficit widens

The current account deficit exceeded 9 billion dollars during the first seven months of the current fiscal year (July-January) - an extremely disturbing trend that has not been arrested, leave alone reversed, in spite of the Abbasi-led administration extending the duration of the export promotion package announced in January 2017 by the then Prime Minister, Nawaz Sharif, a package whose architect was the then functional Finance Minister, Ishaq Dar. The reason for the rise in deficit is partly attributed to the incumbent administration's failure to fully implement the 16 October 2017 decision to levy regulatory duties on 731 import items due to industry pressure - levy designed to meet the financing requirements of the export incentive package.
Exporters complain that the incentive package has not been fully implemented and their refunds remain stuck in the Federal Board of Revenue (FBR) - part of a deliberate government policy to minimize the budget deficit. The Abbasi administration, in contrast to Dar's policy to keep the rupee overvalued to understate the budgeted repayments on foreign borrowing, did allow the rupee to depreciate but exporters maintain that the currency remains overvalued though not by as much as during the Sharif administration but enough to make Pakistani products less competitive in the international market. Exports were 24.7 billion dollars in 2012, the last year of the PPP-led coalition government's tenure, and declined to 21.9 billion dollars in 2017. During the first year of the PML-N administration, exports rose by 1.1 percent, however in subsequent years, the growth rate was negative - a negative 3.9 percent in 2014-15, a negative 8.8 percent in 2015-16 and a negative 0.2 percent in 2016-17.
The massive decline in the international price of oil (a major import item for Pakistan) during 2014, 2015 and much of 2016 led to negative growth in imports during these years, however, by January 2017 imports began to rise - 17.6 percent in June 2017 to as high as 48.8 percent in July 2017, 26.2 percent in October 2017 and 18 percent last month. Imports were around 40 billion dollars in 2012 and rose to 48 billion dollars last year. In short, a negative growth in exports coupled with a failure to check imports (which the government claims is due to a rise in machinery imports under China Pakistan Economic Corridor that would generate growth in time, but data suggests that the biggest rise is in fuel imports followed by transport machinery) is the root cause of the widening trade account deficit, a major component of the current account deficit. It is therefore evident from the data released by the SBP that declining exports and rising imports have placed the current account deficit under considerable stress and this is entirely attributable to the flawed policies of the PML-N administration.
However, one component of the current account has shown a marked improvement during the past four years and seven months notably remittances which provided considerable support to the current account. Remittances rose from 13.1 billion dollars in 2012 to 18.7 billion dollars in 2015 to 19.9 billion dollars in 2016 and 19.3 billion dollars in 2017. Data for remittances for the seven months in the current year as uploaded on the SBP website is favourable when compared with previous years and one would assume that they would continue to extend support to the rising trade deficit. However, the SBP cannot quantify how much of the remittances reflect money laundering, given that remittances are exempt from taxation, and how much is actual remittance from our emigrants.
To conclude, there is an emergent need to resolve all outstanding issues with respect to rising imports and declining exports and to achieve this objective the government must consult with all stakeholders and agree on a set of policies that would at first stay and subsequently reverse the ongoing disturbing trend in exports and imports.