EDITORIAL: Inflow of remittances crossed the $20 billion mark in the first eight months (Jul-Feb) of the current fiscal, up 7.6 percent year-on-year, yet forex reserves still dipped by $250 million to $12.212 billion last week due to “external debt and other payments” (SBP). There are also signs that remittances are plateauing — down 2.7 percent between Feb-2021 and Feb-2022 — so the time might not be too far when the current account has to learn to do without the extra cushion once again. That explains why the finance minister said on Thursday that the import-export gap was a “major roadblock in sustainable development”. The welcome bulge in remittances was never expected to outlast the global reopening after the lockdowns by too much in the first place, yet if the government had planned in advance it’s yet to put its cards on the table. The finance minister did say, as usual, that the government aimed to reduce the trade gap in the “coming years”, but he didn’t break from habit by taking the trouble to explain.
It’s a matter of concern that although exports have increased but still have a long way to go when viewed in the context of the increasing imports and the yawning ever-increasing trade gap despite the massive depreciation of the Pak Rupee over the last four years. One reason is that almost all recent administrations have found it more politically expedient to invest in high visibility projects that fetch easy votes than take the long-term trouble to erect value-added industry for exports. Another is that nobody gave a thought to anything else once the textile sector got going. Apparently, there are plans to revive the IT (Information Technology) industry to “harness its potential to exponentially contribute to exports and support Pakistan’s balance of payments”, according to the finance minister.
Hopefully, the government has some nice tricks up its sleeve because if the policy paralysis isn’t bad enough, there’s also a quickly worsening international situation, driven by the Russia-Ukraine war and made worse by supply chain bottlenecks that will hit the economy like a tidal wave if it is unprepared. Out-of-control commodity prices, especially oil and now also wheat, will be only one part of the problem. Because the global interest rate cycle is reversing as the world bottoms out of the pandemic, and commercial loans are going to become more expensive now. And it doesn’t exactly inspire long-term confidence that the only policy that the government has communicated so far, the so-called relief package, will burden the exchequer, eventually squeezing more out of the people in the best case scenario and bulldoze the Extended Fund Facility (EFF) if it rubs the International Monetary Fund (IMF) the wrong way.
And since all governments must prepare for all contingencies at all times, one can only wonder how Islamabad intends to protect the trade pipeline in case conspiracy theories come true and the war spreads in all directions after all. All this makes for very tricky times, which is uncertainty enough for businesses and markets. The last thing they need is ambiguity about the kind of policies to expect also. The government must sit down with them, take all stakeholders on board, and chart the way forward together. Simply expecting IT to waltz into a fiercely competitive market with very big players and then also “exponentially contribute” to exports might be asking for too much too soon.
The budget is not very far, and all ministries have started working on their proposals. This is when the right planning has to be done. And that will not be possible if input does not come from all sides. The finance ministry should prepare for a declining trend or a slowing down of the incrementally increasing trajectory in remittances; if it hasn’t already started. And exports must finally begin to show more life. Any plan that doesn’t make this its first priority is not worth the time.
Copyright Business Recorder, 2022
Comments
Comments are closed.