The current account deficit constitutes the most formidable challenge for the incumbent government that has begun to withdraw subsidies in order to meet International Monetary Fund’s key conditionality that the latter has linked to resumption of stalled IMF programme and consequent disbursement of $900 million tranche by it.
The current raise in fuel prices has thrown up an opportunity for the government to reduce the country’s import bill payment of which has now become extremely difficult if not impossible for the government in view of fast depleting foreign exchange reserves. It must ensure energy conservation through its writ, reducing business or commercial hours along vehicles’ movement in a meaningful manner.
The power plants which are lying idle because of lack of imported fuel to generate power must be allowed to remain idle until and unless government is able to push the current foreign exchange level to a point where a cover of three months of imports is satisfactorily obtained. Power load-shedding can be addressed by markedly reducing T&D losses. Suppressing demand and enhancing system efficiency in all areas of human activity can help the government address the external sector challenge in a confident manner.
The government has no option but to do it despite the inevitability of a popular backlash for it can always print any amount of rupee but it cannot print dollar. It is needless to say that it is dollar, not rupee, through which the country is always required to foot the import bill.
That we are fast running out of US greenback is a grim reality that has probably placed us less than one step from Sri Lanka where civil unrest caused by an economy that has reached the precipice of collapse despite a negotiated default that Colombo had brokered with its global lenders can lead to a civil war if the South Asian island nation fails to arrest its current economic slide in coming weeks and months.
Nadir Beg (Karachi)
Copyright Business Recorder, 2022