Pakistan’s trade deficit has widened to record highs over the past two months, and with the continued decline in exports, we can expect tough policy decisions in the weeks ahead. The government’s own data, released by Pakistan’s Bureau of Statistics, shows that previous attempts to remedy the situation have clearly failed, with heavy export subsidies and currency devaluation doing nothing to improve the numbers. The numbers are way beyond the government’s worst expectations for the balance of payments situation. Although exports appeared to be on track to meet the annual target, they were well below the government’s forecast for July and August. In the meantime, we are already a quarter of the way towards the annual import target.
This raises serious questions about the capacity of the SBP and the ministries of trade and planning. The question also needs to be answered as to what the export subsidies accomplished and who benefited from them, as it was certainly not the public purse. Just last month, the prime minister called on his finance team to find ways to cut imports of non-essential goods, including automobiles, but the number of announcements for new imported cars suggests that the proposal has nothing to do with it. given. While we have started the year with large reserves of foreign currency, that money will be wiped out very soon if this massive increase in imports continues. In addition, since remittances are not expected to increase significantly, the government may be forced to borrow to build up its foreign exchange reserves. Given the existing debt problems, that would be catastrophic.
Pakistan is unable to pursue import-oriented growth strategies. Experts say the unusual increase in imports is due to a reduction in controls aimed at encouraging economic growth after the slow first half of the PTI’s tenure at the Center. If so, the approach should be reconsidered after the fact. Pakistan is not in a position to opt for growth based on consumption unless the products consumed are local. But the only way to do that would be to reinstate high tariffs and import restrictions while shifting some of the failed export subsidies to manufacturers targeting the domestic market.
Posted in The Express Tribune, September 12e, 2021.
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