The soaring "twin deficits", ie, current account and fiscal deficit is posing threat to the national economy simultaneously on both internal and external fronts, as the State Bank of Pakistan (SBP) on Thursday reported that the current account deficit during the first 11 months of FY06 reached a dangerous level of $5.227 billion (4.28 percent of GDP).
Sources in the finance ministry told Business Recorder though it was largely driven by the burgeoning trade deficit (which is currently at $11.47 billion), the lavish expenditure on foreign trips and huge import of luxury cars have also been causative factors augmenting the current account deficit to the worrisome level.
Country''s current account deficit is the largest, both as a share of economy and in dollar terms.
Sources said that during last 11 months, the national exchequer spent near $1.5 billion on the import of vehicles, more than $1 billion on cellular phone sets, and about quarter of a billion dollars on foreign tours of the President, the Prime Minister and the cabinet members.
The current account deficit, excluding official transfers, during the period under review (July-May 2006) grew by more than 210 percent to $5.227 billion as against corresponding period FY05 ($1.683 billion).
It is also important to note that Finance Secretary Tanveer Ali Agha has also once in the Public Account Committee (PAC) meeting some two-month back confessed that current account deficit is expected to touch $7 billion by end this fiscal and to keep it in control, the government would rely on inflow of privatisation proceeds, FDI, remittances and foreign aid.
According to economic experts this external imbalance in the shape of "twin deficits" may have a significant impact on the value of the rupee-a matter attracting keen attention around the country. Besides, it would translate into a large increase in Pakistan''s net foreign debt position. A large and growing public debt could also eventually put upward pressure on interest rates and crowd out private investment.
One dismaying aspect is that though the government could have easily controlled this extravagance, none bothered about it.
The economic managers kept on saying that Pakistan is enjoying an economic boom and the current account was manageable by borrowing from abroad, remittances, drawing down reserves and inflow of investment.
According to them, inflow of remittances, FDI, portfolio investment, foreign economic assistance and foreign exchange reserves are very encouraging. But, how long can trade deficit continue on that trajectory without disrupting the economy? And how much longer, can Pakistan continue to spend more than it earns and support the growth? And are the inflows sustainable in the long run?
The most depressing thing was that foreign trips remained almost fruitless as no improvement was seen or mentioned about enhancement of exports (for which, the government would miss the export target of $17 billion by huge margin) or increase in investment, sources said.