THE government is in a state of euphoria and is citing the current account surplus as a successful attempt at stabilising the economy and plugging the erosion of forex reserves. Certainly, the surplus of $959m in the first three quarters of the present fiscal year is a significant improvement over the deficit of $4.147bn a year ago. But we need to pause here and consider the factors that have contributed majorly to the current account surplus and analyse the recent emerging trends that may reverse the situation going forward. The surplus achieved so far can largely be credited to the increased inflow of dollars in the shape of remittances and exports of IT services through formal banking channels in recent months, mainly because of international travel restrictions related to Covid-19 and improved compliance with FATF conditions. Likewise, the restrictions are also attributed to decreased dollar outflows with fewer Pakistanis travelling abroad for leisure, business or pilgrimage. The question is whether these inflows will be sustained once the world returns to normal.

We also need to take into account the returning trend of the current account deficit since December. Even though the cumulative deficit during the last two months has shrunk to just $78m from $854m in December and January — again because of rising remittances and IT exports — it depicts an emerging trend on the back of augmented imports of oil, machinery, steel products and raw material as the economy picks up. Moreover, the food import bill is also spiking owing to domestic wheat and sugar shortages. On the other hand, the country’s exports are slow to grow and unlikely to cover the rise in the import bill anytime soon. That is not all. The financial account of the balance of payments, which had been in surplus since July, has again turned into a deficit of more than $1.4bn in the last three months as foreign direct investment plummets by 35pc, equity investors pull out their money from stocks, foreign debt payments jack up and outflows of amortisation and other transactions grow. Thus the overall balance-of-payments position, though improved, remains delicate. The government needs to look at the whole picture rather than focusing on just one aspect. A stable external sector demands that the government take urgent action to fix agriculture, loosen the noose around the economy to help growth, and develop industrial infrastructure to attract foreign investors and boost exports.

Published in Dawn, April 27th, 2021