EDITORIAL: The country registered a current account surplus of 654 million dollars for March 2023 — the first surplus recorded since November 2020.

However, a tweet from the State Bank of Pakistan (SBP) noted that cumulatively current account deficit declined to 3.4 billion dollars July-March 2023 against a deficit of 13 billion dollars in the comparable period of the year before.

While this is certainly good news as it would reduce the pressure on the country’s dwindling foreign exchange reserves, 4038.3 million dollars as on 7 April 2023 (less than two months of imports with rising international price of petrol and products) and one billion dollars payable this month for maturing Eurobonds, yet the surplus for March has been achieved at the cost of four key deteriorating macroeconomic indicators: (i) due to severe exchange rate restrictions, necessitated because of low foreign exchange reserves, that include limitation on advance payments for imports against letters of credit, advance payments up to a certain amount per invoice for import of eligible items (including raw materials and semi-finished products as well as inability of power generation IPPs to either purchase key inputs or remit their profits there has been a steady decline in the large scale manufacturing index (LSMI) calculated at negative 5.56 percent July-February 2023; (ii) lower LSMI has had negative implications on exports, which declined in dollar terms from 23.350 billion dollars July-March 2022 to 21.051 billion dollars in the comparable period of this year; (iii) lower LSMI has led to job losses with around 7 million job losses in the textile sector alone by January this year with millions of families pushed below the poverty line; (iv) growth rate has declined considerably and is projected at 0.5 percent for the entire year by the International Monetary Fund (IMF).

There is little the government could do except implement these exchange restrictions, given that the balance of payment position was under extreme stress, and this was intimated to the Fund staff as reported in the seventh/eighth review documents: “the authorities requested more time to eliminate all remaining restrictions when balance of payment conditions permit by the new end of the programme at end-June 2023.”

However, the subsequent decision by the Ishaq Dar-led finance ministry to control the rupee-dollar parity exacerbated the impediments to LSM sector’s ability to import essential inputs with a consequent negative impact on other key macroeconomic indicators.

The problem with the policies currently being implemented is two-fold: while the government is laying the entire blame for upward revision in utility rates to achieve full-cost recovery on the IMF’s prior condition for the ninth review yet it has made no effort to implement meaningful structural reforms that would usher in an era of efficiency in all those sectors/entities that it operates and which are running at massive losses – reforms that have the capacity to give the general public some hope that the country is embarked on a programme with the capacity to finally and conclusively resolve all prevailing economic issues.

And secondly, the emphasis remains on providing fiscal and monetary incentives to exporters, which the government can ill-afford especially, given the rising number of those under the poverty line, a policy that continues exporting items that are surplus rather than to produce specifically for export purposes.

We appear to be continuing with the past flawed policies that have simply aggravated the economic woes of this country in general and of the hapless public in particular.

One would hope that this will change though an election year is hardly the time when one would expect the government to implement politically unpopular reforms notwithstanding the claims by the lead party in the eleven-party coalition government that it is paying a political price for taking economically appropriate decisions.

Copyright Business Recorder, 2023