EDITORIAL: Pakistan Bureau of Statistics (PBS) released balance of trade figures for July-December 2023, which reveal a sizeable decline in negativity against the comparable period of the year before: 15.51 percent in rupee terms (to negative 3.198 trillion against negative 3.78 trillion rupees) and in dollar terms negative 34.29 percent (to negative 11.148 billion dollars from negative 16.965 billion).
Given that the trade deficit is a major component of the current account deficit this data, should be a source of comfort to the stakeholders. However, complacency has to be tempered with two disturbing elements. First, exports have registered a rise of 5.17 percent in dollar terms - from 14.24 billion to 14.88 billion due to a rise in the international price of our major exports rather than a rise in the volume of exports, which consist mainly of consumer products whose demand fluctuates widely with the state of the economy of our major buyers.
To this day, Pakistan continues to export its surplus (textiles, carpets and leather items) rather than setting up a dedicated export based industry – a trend that must change. In rupees terms, the rise in exports is a whopping 35.27 percent – from 3177.8 billion to 4298.7 billion; however, this differential is due mainly to the prevalent exchange rate – the PBS cites the rate at 224.76 rupees to the dollar in December 2022 to 283.64 last month or an erosion of 26 percent.
Secondly, imports continued to register a decline for the first half of the current fiscal year against the comparable period of the year before. In dollars terms imports declined by 16.28 percent, much more than the rise in exports of 5.17 percent, while in rupee terms they declined by 7.67 percent, lower than the 35.37 percent rise in exports.
This decline was due to administrative measures, which included reduced imports of raw materials that, sadly, had a negative impact on large scale manufacturing growth that registered at negative 0.44 percent July-October this year.
In this context it is relevant to note that such checks are envisaged in the short term as in the ongoing IMF’s Stand-By Arrangement the 11-party coalition government pledged to end import controls by the end of the programme period scheduled for 12 April – two months after the elections scheduled for 8 February.
Historically, Pakistan has subjected itself to cyclical unsustainable trade imbalances which, in turn, have accounted for a plummeting current account deficit and plunging foreign exchange reserves, necessitating an International Monetary Fund (IMF) programme coupled with a steadily enhanced reliance on borrowing from other multilaterals/bilaterals/commercial banking sector abroad/ issuing Sukuk/Eurobonds.
What has been ignored is the fact that this cyclical phenomenon is attributable to persistent flawed policy decisions that explains why Pakistan is currently on its 24th IMF programme, is widely expected to seek another programme subsequent to the elections and has, over time, lost leverage with donors in terms of phasing out politically harsh upfront conditions.
Be that as it may, the issue today is the rise in the negativity in the financial account, which is a component of the balance of payment table uploaded on the State Bank of Pakistan (SBP) website, consisting of data up to November 2023: negative 3120 million dollars July-November 2024 against negative 1246 million dollars in the comparable period of the year before. SBP reserves were 5821.9 million dollars on 23 December 2022 and are cited at 7757 million dollars on 22 December 2023 - a rise of 1935.1 million dollars this year.
However, it is relevant to note that: (i) the existing reserves are still insufficient to meet the standard required three months of imports, which is why the import controls are continuing; and (ii) in December 2022 the IMF had suspended its tranche release due to violations of the agreement by Ishaq Dar, a condition that is not applicable today as the first review of the SBA was agreed on 15 November 2023; however, the country’s credit rating remains unchanged and this accounts for the inability to borrow the budgeted 6.1 billion dollars from commercial banks abroad and issuance of Sukuk/Eurobonds.
There is clearly an urgent need to focus on policy measures that are designed to change the nature of our exports as well as improve the volume of existing exports, and bring the utility rates at par with those of our competitors.
Relying on foreign direct investment to take the economy out of its deepening economic impasse has yet to pay dividends as Direct Investment (inclusive of equity and investment shares and debt instruments) as per the SBP declined to negative 637 million dollars July-November 2023 against negative 569 million dollars in the comparable period the year before.
The need to change the policy matrix in not only how all previous (as well as the incumbent) administrations have dealt with the utility sector, the tax structure, the power sector, state owned entities but also their selection of industries to incentivise has led the country to the situation prevailing today: elite capture that has contributed to 40 percent poverty levels today and an inflation rate close to 40 percent as indicated by the Sensitive Price Index.
Copyright Business Recorder, 2024