THE fiscal year in progress opened with a revised figure for last year’s current account, which came in at above $12bn, an all-time high for the country. The deficit had tripled in one year, and worries mounted that the country was on an unsustainable growth trajectory. Partially in response to these fears, the government took some steps to try and curb imports through regulatory duties, which paid meagre dividends in the next quarter when the deficit fell fractionally from its corresponding quarter in the previous year. A few more steps followed, such as two rounds of exchange rate depreciation. Exports grew by 12pc in the second quarter, the first rise after years of decline, while imports grew faster still, despite the regulatory duties. Now the third-quarter data is showing that the deficit is back, jumping by 22.5pc in the first nine months of the fiscal year, despite the fact that last year’s third quarterly data already showed a record increase.

It might be a bit too early to say, but it is possible that the steps taken by the government to curb the deficit — duties and depreciation — may have run their course, with their effects largely priced in. If this is the case, then there are good reasons to worry, since it would imply that the problem persists while the government is out of ideas. It is unlikely that in the closing weeks of its term the government can come up with a plan to reverse this trend. All attention is going to be concentrated on the approaching polls and the mounting political challenges. From here on, the economy must wait till a strong new government, with a full mandate behind it, is sworn in before any thought of remedial action can be considered.

In fact, fears that matters would unravel this year could well prove true — again. Already the State Bank, IMF, the World Bank and ADB have collectively flagged the external account deficit as the Achilles heel of the country’s economy. Some reports emanating from within the finance ministry suggest that the message has been received. Thus far the only course correction being offered is the controversial tax amnesty scheme, which the government hopes will result in enough money being brought back into the country from abroad to earn valuable new time. How much time might be earned through the exercise, though, is hard to say, since the underlying dysfunction of high consumption and low productivity will remain in place, leading to continuing drains on the external account. With its term drawing to a close, the PML-N can rightfully claim to have restored growth to the economy. But the persistent rise in the current account deficit only shows that Pakistan’s economy is not in a position to afford this growth.

Published in Dawn, April 21st, 2018