Former secretary finance and current chairman of FPCCI’s Policy Advisory Board Mohammad Younus Dagha has said that the country’s biggest economic issue is the widening trade gap that can only be curtailed through quantitative restrictions on imports.

“The biggest economic issue which we are facing since 2005 is the trade deficit that cannot be solved by monetary policy measures until we curb imports,” said Dagha, while talking to a private channel.

Dagha emphasised that the government needs to implement quantitative restrictions on imports. “This is because a major portion of our imports is inelastic,” he said.

Pakistan’s trade deficit widened by 111.74% to $20.590 billion during the first five months (July-November) of current fiscal year 2021-22 as compared to $9.724 billion during the same period of 2020-21.

Dagha said that the ongoing trend is not sustainable. “Every year if we are facing a deficit of $8-10 billion we are bound to take more loans, which will make our debt unsustainable.”

He said that the generation of electricity using imported fuels is also not necessary, except for industries. “Generating imported electricity for domestic usage should be curtailed in order to save dollar reserves,” he said.

Any further increase in policy rate may trigger stagflation: FPCCI

Elaborating on quantitative restrictions, Dagha said that in the short term, the government should ban a number of imports, which would help the country save $7-8 billion. “For the medium and long term, we should move towards ensuring energy and food security,” he said.

Talking about the expected policy rate hike in the upcoming MPC, Dagha termed the ongoing double-digit inflation rate as supply-side. He added that inflationary pressures cannot be handled by increasing interest rates.

He said that as the majority of bank loans go to the government, the hike in interest rates would only increase the budget deficit and add pressure on the Federal Board of Revenue (FBR) to impose more taxes.

Dagha said that the free-floating exchange rate was the correct move, but in Pakistan it needs to be managed.

“We should keep the rupee under a managed float, as we are not working in an efficient market. Therefore, the government could intervene in order to bring stability to the market.”