THE latest data released by the State Bank shows an alarming increase in the current account deficit. Coupled with falling reserves, the data points towards a worsening of the external sector. The current account deficit for the first half of the fiscal year almost doubled from the same period last year, despite a slight rise in direct investments. As a percentage of GDP, the deficit came in at 2.5pc in the first six months of this fiscal, compared to 1.5pc in the same period last year. The trade deficit accounted for the bulk of this worsening situation, which suggests that the revival of growth under way is lopsided. Most of the gap in trade is due to rising imports, which may in part be due to CPEC-related machinery and, therefore, transient. But it would be a mistake to take too much comfort from this thought.

For one, it isn’t clear when CPEC-related imports will taper off, given the constant addition of more projects under the corridor umbrella. And secondly, once CPEC imports do subside, a new stream of outflows is likely to begin in the form of debt-service payments and repatriation of profits, so the pressure will move from the current account to the financial account instead. For the moment, reserves still managed to register an increase from the corresponding period last year. But since July, reserves have been coming down, with the State Bank warning that this might not be a transient trend. A troubling situation appears to be taking shape, even though it presents no immediate risks. One is hard-pressed to understand how this slide into growing external deficits is supposed to be arrested. It is difficult to believe that somehow CPEC-related investments will boost exports. With no plan in sight, it is fair and reasonable to ask whether we will be back on the road to the IMF a few years from now.

Published in Dawn, February 21st, 2017