EDITORIAL: The trade deficit for the first quarter 2022-23 registered negative 9.2 billion dollars against 11.7 billion dollars in the comparable period of 2020-21 – a significant decline of 21.4 percent. A major contributor to this decline, 1267 million dollars, is the 2022 September import bill (5269 million dollars) against the September 2021 import bill (6563 million dollars).
The reason for this decline can be sourced to a massive reduction in fuel consumption estimated at 21 percent for petrol and 44 percent for high speed diesel which, in turn, is attributable to not only a rise in the international price of fuel but also the pledge made by the government to the International Monetary Fund (IMF) to raise petroleum levy to the maximum allowed (50 rupees per litre by January 2023) to achieve the budgeted target of 750 billion rupees in the current year but also due to the rise in the general price level with Sensitive Price Index for week ending 29 September 2022 registering 30.62 percent, the consumer price index of 23.2 percent and core inflation (not impacted by the rupee-dollar parity) at a whopping 14.4 percent.
The tight monetary and fiscal policies agreed with the Fund in the seventh/eighth review (dated September 2022) are taking their toll on productivity with a consequent impact on employment levels.
If one adds the devastating impact of the floods on farm output, on the emergent need for extending assistance to the 33 million adversely impacted by the floods and the destruction of infrastructure one is simply overwhelmed by the issues that beset our fragile economy today.
Exports, the trade figures reveal, rose from 6996 million dollars July-September 2021 to 7125 million dollars in the comparable period of 2022; however, what must be a source of concern is that exports declined in September 2022 to 2387 million dollars against 2409 million dollars in the same month a year before.
An unsustainable trade deficit, a major component of the current account deficit (CAD), has been the reason behind administration after administration seeking an IMF programme. Given that in Pakistan’s history the current IMF programme is the twenty third, with on average a three year duration each, it is little wonder that the country is labelled a perennial borrower, with a gradual downsizing of leverage in terms of phasing out or limiting politically challenging upfront reform conditions.
And disturbingly even though the country has extended billions of rupees of fiscal and monetary incentives to the productive sectors - specifically in terms of cheap credit, low taxes, special utility rates and special economic zones - yet these policy measures account for the steady rise in elite capture of the country’s scarce resources rather than developing a productive sector focused on producing to export and instead the country continues to export its surplus – be it raw cotton, rice, carpets, textiles, leather, sports goods.
Today the country is no longer in a financial position to extend incentives, be it in terms of cheap credit, or subsidized utility rates – subsidised electricity rates have been withdrawn after the first quarter of the current year as such measures would violate the terms of the agreement with the Fund.
In other words, painful politically challenging reforms are required that not only envisage taxing the wholesalers/retailers, a sector that contributed 19 percent to GDP last fiscal year as per the Economic Survey, but also the rich landlords’ income must be taxed at the same rate as the salaried to achieve equity. And the government needs to slash current expenditure and undertake studies to determine whether the costs of the monetary and fiscal incentives to specific sectors have achieved the desired results.
Copyright Business Recorder, 2022
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