Despite exports growing 28 percent year-on-year in September, Pakistan’s trade deficit remains worryingly wide and is expected to increase exponentially as imports continue to outpace exports. With exports standing at $6.96 billion against imports of $18.63 billion this past quarter, the gap is significant. The trade deficit having doubled in the first quarter for FY 2021-22 over last year is a horrifying statistic that should worry the country’s economic managers. The current account deficit too has experienced a similar increase, 85 percent in August over the previous month, which has made it near impossible for the State Bank of Pakistan (SBP) to stay within its predicted range of 2 to 3 percent of GDP. The rupee has lost close to Rs 20 since May, with no indication of reversal in the near future. An exponential increase in dollar demand by importers and speculative investors, smuggling of cash dollars to Afghanistan of around $15 million daily and SBP reluctance to fully intervene in the market, have all contributed to the rupee’s fall. This, coupled with rising international commodity prices, has made energy imports too expensive. With negotiations to restart the IMF’s suspended $6 billion Extended Fund Facility (EFF) around the corner, petrol prices were hiked by Rs 4 a litre last week, while the power tariff went up Rs 1.65 per unit on Monday. Expectedly, inflation has skyrocketed to 9 percent in September, much of which is imported.
The SBP had been implementing an expansionary monetary policy to generate economic activity, overheating the economy, forcing monetary policy tightening. The discount rate was increased by 25 basis points last month and reportedly the SBP had no choice but to intervene in the interbank market to calm the rupee when it first started testing the 170 level. Apart from making credit more expensive, a revised car leasing policy has been introduced to reduce the volume of imported vehicles. Recovery from here on out will be slow and long. The PTI government has simply been reacting to economic events and problems as and when they arise for the past three years rather than implementing tough structural reforms that would address underlying problems in the economy. Going forward, unless such a strategy is formulated and followed through properly, any economic growth will be difficult to achieve and maintain for too long as its foundations will be fundamentally flawed and weak.
