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Not so sunny

January 12, 2019

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WITH some foreign exchange inflows lined up from ‘friendly countries’ and the first favourable data on the trade deficit in the month of December, the government has undoubtedly earned itself a moment of respite from the economic pressures it inherited. But it would be a mistake to see this as anything more than a momentary lull in the powerful headwinds that the economy has been facing. The prime minister is reported to have expressed deep relief upon hearing the latest trade deficit figures, and remarked that “we are moving in the right direction”. The finance ministry has also taken the unusual step of issuing a statement on the day the data came out showing a sharp fall in the trade deficit last month, claiming that the measures taken in their mini budget in September “have firmly taken hold and are now effectively curtailing imports as per policy regime of the government”. On the same day that the data was released, Finance Minister Asad Umar met a group of broadcast journalists and told them that recourse to the IMF may not be required since the external sector has been strengthened through bilateral inflows, and the government may work on a ‘home-grown’ strategy of adjustment instead.

These words suggest complacency. The fall in trade numbers is not as sunny as the government would like to present, considering export growth has remained sluggish. Moreover, import compression achieved through regulatory duties is hardly the ‘right direction’ when it comes to policy. It is at best a holding pattern while a policy direction is set. And finally, falling imports could be the result of the government’s ‘policy regime’, as the finance ministry statement tries to claim, and equally the consequence of collapsing economic growth. We can say that government measures have ‘firmly taken hold’ only when the trade deficit improves in the context of a rebound in exports and a revival of growth within the economy. If the rulers continue to appear complacent in its battle to stabilise the economy, we will know that the idea of a quick fix appeals just as much to this government as it did to past dispensations. The bilateral inflows and falling trade deficit may end up shoring up reserves in the very short term, or at least slowing the pace of declines. But nothing is achieved beyond a little more time. The real work is yet to begin.

Published in Dawn, January 12th, 2019

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