While the present and prospective rulers of the country are busy in political squabbling, economic difficulties of the country are multiplying and nobody seems to be paying attention.
According to the latest statistics released by the State Bank of Pakistan on 22nd February, current account deficit of the country has hit a new peak of 7.51 billion dollars during the first seven months of the current fiscal year (July-January, 2008) which was higher by 2.40 billion dollars or 47 percent in the corresponding period of 2006-07.
Breaching all previous records, the country's current account deficit so far is nearly 4.2 percent of GDP as against the target of 5.0 percent for the whole fiscal year. The huge increase in deficit was attributed to higher trade, services and income deficits, besides large payments of interest and dividends during FY08, although the rise in home remittances by 22.4 percent neutralised the negative impact of these factors to some extent.
Merchandise account, in particular, fared very badly as imports during July-January, 2008 reached 18.78 billion dollars as compared to exports of only 10.98 billion dollars. The uglier part of the situation is that current account deficit, which is the real barometer of the external sector position of the country, has been steadily increasing without any visible move by the authorities to arrest this highly negative trend.
At the current rate, the deficit during 2007-08 could easily surpass 12 billion dollars or about 7.0 percent of GDP, and in all probability, the problem could even worsen in the coming months due to the persistence of high oil prices in the international market at around 100 dollars per barrel and acute energy shortages in the country.
The KESC has already alerted industrial and domestic consumers of the city about the possibility of worst power breakdowns in the coming summer that would hit the industrial activity very severely and adversely affect the export growth prospects.
The previous government and the present caretaker dispensation have been warned a number of times about this alarming situation by the multilateral institutions and the State Bank but their response has been generally indifferent. The reason for this apathy may be that the resolution of the problem can be easily postponed for some time by increasing external indebtedness or drawing down foreign exchange reserves of the country.
The latest trend in these two aggregates suggests that such a strategy was in fact adopted in the recent past. However, these options are not without grave risks to the economy. Sooner rather than later, a stage will be reached when the rupee rate would tend to depreciate, price pressures will build up, credit rating of Pakistan will go down, and solvency of the country would be at stake.
The country's capacity to import could also be impaired, leading to shortages of industrial inputs and unemployment in the country. Keeping all these factors in view, there is an urgent need to arrest this deteriorating trend and try to revert to a sustainable position in the external sector as soon as possible.
However, given their past record, the credentials of the two main political parties who are likely to form the government in the centre do not inspire much confidence.
During their previous stints in the government, the position in the foreign sector had worsened to an extent that the country was forced to seek assistance from the IMF and foreign currency accounts had to be frozen due to extremely low level of reserves as against a huge amount of foreign exchange demand liabilities accumulated over the years to finance the external sector deficit.
We earnestly hope that the incoming government would deal with the problem in a wiser manner this time and not let the country suffer the humiliation of requesting for aid and assistance from multilateral institutions and other donors to bridge the gap between receipts and payments in the external sector.