The country’s current account deficit spiked to historic $18bn mainly due to a record trade deficit of $37.64bn during the outgoing fiscal year 2017-18. Foreign exchange reserves also depleted to $15.682bn.
The country’s current account deficit spiked to historic $18bn mainly due to a record trade deficit of $37.64bn during the outgoing fiscal year 2017-18. Foreign exchange reserves also depleted to $15.682bn.

ISLAMABAD: While setting aside all proposals on table, the caretaker government has left the mammoth job of tackling the surging current account deficit to the next government.

“We have received several proposals from various quarters including the Federal Board of Revenue (FBR) for curtailing the rising import bill,” a well-placed source in the Finance Division told Dawn on Saturday, adding that the proposals have been returned unattended on the plea that the Election Act 2017 bars interim government from taking major decisions.

Being a former State Bank governor and a development economist, Dr Shamshad Akhtar after becoming interim finance minister has also held several meetings with top officials to work out immediate ways for fixing the problems, but she was informed that ‘no major decisions’ can be taken as the law restricts it.

Law bars interim government from taking major decisions to fix economy

The current position raises the need for an economic emergency with a string of unpopular decisions.

The official said that despite this restriction, two major decisions were still taken to make some level of correction in the economy. The central bank has raised the interest rate to 7.5pc from 6.5pc and allowed depreciation of the rupee to an unexpected level. Both these decisions, according to the official, will contribute to the economy in the longer run.

The current account deficit at the end of five-year PML-N government touched $18 billion by end June, the highest in the history of the country.

The official said that for controlling the deficit, the third major step is cuts in expenditure. “We have reached a conclusion that a major cut is required in the expenditure to control the current account deficit,” the official said.

However, the interim government can’t take this decision, the official said, adding this issue was left for the new government to take, which would be left with no other option, but to take this unpopular decision, said the official.

The import bill has reached to $60.86bn by end June while export proceeds bought a mere $23.22bn, leaving a huge trade deficit of $37.64bn.

The import bill went up despite the imposition of regulatory duties two times and other restrictive measures taken by the central bank and Commerce Division in the outgoing fiscal year.

FBR has evolved several proposals as part of an effort to control the rising import bill and raise revenue for achieving the current fiscal year revenue target. A source in the bureau told Dawn that it was proposed to withhold all the relief measures announced in the last budget of PML-N government which, among others, give massive relief in income tax to higher-income individuals.

The interim government was informed that all these measures were tailored in a way which gives concessions to employees of multinational companies at the cost of national exchequer, the source said.

The interim government, according to the source, agreed with the proposal in principle but it lacks the power to reverse the decision. However, the source said FBR will take up these undue tax concessions with the next elected government.

The customs department has also proposed to further enhance the regulatory duties in a bid to curtail the rising import bill.

The government has imposed regulatory duties on 1,500 tariff lines in 2017-18. Of these, the import of nearly 700 items slowed down considerably, said the source, adding the collection of customs duty fell nearly Rs14bn in the outgoing fiscal year.

On the basis of this achievement, the customs department further recommends to raise regulatory duties on those tariff lines import of which is still on the higher side.

Statistics show that dutiable imports posted a growth of 13pc, while the duty free (zero pc) imports recorded a growth of 37pc during the year under review. The duty-free imports include import of LNG, turbine and other machinery imported under the China-Pakistan Economic Corridor.

Pakistan imported $2.5bn worth LNG alone in 2017-18.

FBR has also recommended halting further preferential agreements which are currently under negotiations. Similarly, it is proposed to further impose regulatory duty on those items which are presently allowed either at zero pc or preferential duty under the free trade agreements.

Published in Dawn, July 22nd, 2018