EDITORIAL: Pakistan Bureau of Statistics (PBS) noted a narrowing of the trade deficit to 23.71 billion dollars (July-April) year-on-year, a decline of 39.62 percent in comparison to the year-on-year before, generally regarded as a positive feature in a country where trade deficits have been unsustainable and a major reason for incurring expensive foreign loans, and a 36.4 percent Consumer Price Index (CPI) for April, an increase of one percent from March 2023 after the government had launched its free wheat flour programme.
Two observations are in order. First, the narrowing of the trade deficit is not due to a rise in exports but a massive reduction in imports.
In rupee terms, exports have risen from 4,552,181 million rupees July-April 2021-22 to 5,558,515 million rupees in July-April 2022-23, as the rupee has depreciated significantly in dollar terms since last year, but exports declined in dollar terms by 3073 million dollars between the two periods – from 26.247 billion dollars to 23.174 billion dollars.
Imports, on the other hand, declined from 65,519 million dollars July-April 2021-22 to 46,887 million dollars in the comparable period for the current year.
This disturbing data accounted for a rise in the trade deficit from negative 39,272 million dollars in July-April 2021-22 to negative 23,713 million dollars in the comparable period of the current year – a decline that raises the requirement for foreign borrowing which, in turn, requires the long pending ninth review to be declared a success that in turn may improve our ratings by international agencies, making it relatively less expensive to borrow from the commercial equity market abroad as well as from commercial banks.
And, second, the failure to check prices is now assuming alarming economic and political ramifications – economic because the Ministry of Finance is relying on the same old methods to generate revenue, i.e., through levying additional indirect taxes whose incidence on the poor is greater than on the rich and on raising utility rates which are impacting on the value of each rupee earned by the lower to middle income earners by more than on the rich while refusing to scale down its own expenditure at the cost of heavy domestic borrowing, with foreign borrowing extremely limited till the pending ninth review is declared a success, which is a highly inflationary policy.
Government stalwarts led by Finance Minister Ishaq Dar routinely accuse the previous government of the current state of the economy and this unfortunate attitude of passing on the buck while not accepting blame for one’s own seriously flawed economic policies that remain the only reason for the pending ninth review, while long a hallmark of the third-time Finance Minister, needs urgent remedial measures.
True that the Khan administration undertook some economically flawed decisions, notable amongst which were the 1 March 2022 relief package that the government could ill afford and which led to a delay in the scheduled IMF’s seventh review, yet it must not be forgotten that from March 2020 till middle 2021, more than a year and a half of the 3 and a half years of the Khan administration, the IMF granted a reprieve to the government in implementing its harsh conditions while also extending Rapid Financing Instrument of 1.6 billion dollars to meet the Covid-19 crisis.
There is no doubt that the damage to the Pakistan economy with respect to the pandemic was far less than the damage wrought by the devastating 2022 floods; however, last year the negotiators with the Fund were the PDM (Pakistan Democratic Movement) team and not the Khan administration.
The seventh/eighth review signed off with the Fund mid-August 2022 did not even mention the floods and that omission rests with the incumbent government.
What is fairly evident is that while the Shehbaz Sharif government was largely successful in internationalizing the extent of the flood damage yet the economic team leaders - Miftah Ismail and the then Acting State Bank of Pakistan Governor - failed to even put one sentence in the Letter of Intent detailing the flood damage.
Ishaq Dar since he took oath as the finance minister embarked on two disastrous policy decisions whose cost was paid by the hapless people of this country: (i) control of the rupee that made our exports uncompetitive as well as eroding the already fragile foreign exchange reserves coupled with foreign exchange restrictions that led to a massive decline in imports as well as a massive decline in productivity as raw material and semi-finished imports had severe repercussions on domestic output; this policy was abandoned end January, prompting the IMF team to announce a visit by 1 February; and (ii) with flood victims assessed at 33 million people Dar nonetheless announced a 110 billion rupee electricity subsidy to exporters, an elite group, which he was also forced to abandon.
Today the economic situation is much worse than it was on 10 April 2022 when the new government took oath and while the Khan administration is guilty of signing off on a deal with the Fund that had little empathy with the poor, the signatories of that deal were economists sold on the Fund’s policies due to their own long-term experience with donor agencies, but a comparative analysis reveals that the poor handling of the economy is much more marked at present then it was before.
Pakistan desperately needs not only a qualified economist today but also one who will not bow down to political pressure and have the courage to resign in case the pressure is overwhelming – two characteristics that we lack today in our economic team leaders.
Copyright Business Recorder, 2023
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