PAKISTAN’S current account deficit has surged to $17.4bn or 4.6pc the size of the economy during the last fiscal year on the rising trade deficit, in spite of multiple actions taken by the government and the central bank since the last quarter of 2021 to restrict imports. The growth in exports and remittances sent home by Pakistanis living abroad did somewhat help close the gap, but elevated international commodity and oil prices meant that the country would spend more on its energy and other imports. The higher prices and 33pc spike in imports from the petroleum group more than doubled the country’s oil import bill to $2.9bn in June from $1.4bn in May, the central bank said, and pushed up the month-on-month trade deficit by 27pc, despite a drop in non-oil imports. A surging current account deficit amid depleting dollar inflows from multilateral and bilateral lenders, as well as shrinking foreign investment have brought the foreign exchange reserves and rupee under enormous pressure over the last several months, stoked rapid inflation, forced the State Bank to boost borrowing costs to a multiyear high and eroded investor confidence in the economy.

Finance Minister Miftah Ismail recently said a policy plan would soon be in place. “Imports will go down gradually and exports will be up organically within three months,” he said without elaborating. The State Bank too is hopeful of the current account moderating from this month. The “… surge in oil imports saw the current account gap rise to $2.3bn in June despite higher exports and remittances. So far in July oil imports are much lower [due to the accumulation of record-high stocks] and the deficit is expected to resume its moderating trajectory,” the bank tweeted. With the IMF expected to release its funds soon, thus unlocking additional financing from other multilateral and bilateral creditors, Pakistan’s external sector may likely perk up in the short term. Yet, the deepening political turmoil is spawning doubts about the government’s ability to make tough decisions going forward and tackle the long-standing structural issues of the economy responsible for the recurring balance-of-payments crisis. Lately, global credit rating agencies like Fitch and Moody’s have also cited political risks to Pakistan’s ability to maintain a credible policy path. It will be unfortunate if the country digresses from the stabilisation path and fails to address structural impediments to exports and FDI because of the opportunistic politics being witnessed at the moment.

Published in Dawn, July 29th, 2022