LAHORE: The Federation of Pakistan Chambers of Commerce Industry’s Businessmen Panel has warned the government of incessant surge in trade deficit, widened by 106.4% during the first half of the current fiscal year 2021-22,keeping the local currency under pressure, which is back to its depreciating trend against the US dollar, after remaining stable for a couple of days.
The BMP chairman Mian Anjum Nisar urged the government to control volatility of rupee against the US dollar, which is not possible without keeping a check on soaring trade deficit, putting the industrial revival and economic growth at risk.
The trade deficit during the first six months of July-Dec has reached $25.478 billion compared to $12.34 billion registered during the same period of 2020-21, he said and added that last week, the rupee had closed at its all-time record low of 178.24 against the US dollar before appreciating the following two days to end the year at 176.51.
He was of the view that State Bank of Pakistan will have to remain vigilant in this regard. Besides this, the SBP and the government also need to intervene and come up with policy reforms to control depreciation of rupee with a view to address the issue of trade deficit.
FPCCI’s Businessmen Panel Chairman said that apart from increasing exports and keeping a check on imports the government will have to take administrative measures, as a large demand of cash dollars are seen in the market.
He said that it is appreciable that the country’s exports increased by 24.7% and remained $15.102 billion in the first half of current fiscal year but it is also the fact that the imports are also skyrocketing by 65.94% to reach $40.58 billion, which is alarming.
If the increase in imports continues the rupee depreciating cannot be avoided, he warned and suggested to provide incentives to industry to further rise in exports. If the situation persists, the interest rate could go even higher as the import bill widens, he added. He maintained that the rupee depreciation comes despite the SBP’s latest measure in which it amended foreign exchange regulations for exporters. During the week SBP had announced to reduce the period of exports proceed realization by 60 days and now the exporters will be required to bring export proceeds within a maximum period of 120 days from date of shipment but the new measure did not have positive impact so far,” he said.
The SBP is of the view that a flexible exchange rate has appropriately played its role as a shock-absorber and it is important that its role be complemented by strong exports proceeding realization, he added.
This indicates that the pressure on the rupee is consistently increasing, he said, stressing the need to devise a strategy on war-footing to increase foreign investment in Pakistan so as to stop the upward trajectory of the dollar.
He said that the continuous increase in imports is fuelling the dollar’s demand in the market. Apart from increasing exports and controlling imports the government will have to take administrative measures, as a large demand of cash dollars are seen in the market, he suggested.
He observed that the market-based flexible exchange rate system, resilience in remittances and other factors can help contain the current account deficit in a sustainable range of 2-3 percent of GDP in FY22. He said that the rising of dollar is not logical despite the fact that the State Bank says Pakistan’s external position was at its strongest with 0.6pc current account deficit.
He emphasized the need to keep incentivizing export-oriented sectors in order to take the exports to the next level. He said that there is no denying of the fact that the government has been facing numerous economic challenges besides other internal and external issues and problems during the last three years.
He said that textile industry has been maintaining top position in exports and is the lifeline of Pakistan’s exports, which would be further, increased after decision of government’s relief to this sector.°With the resolution of hampering issues, he hoped the share of exports could go high further in FY 2021-22.
Copyright Business Recorder, 2022