EDITORIAL: Current account deficit

EDITORIAL: The current account deficit has surged by over 255 percent year-on-year during the first four months of the current fiscal year. This was projected by Business Recorder, given that the government had to loosen its administrative control on opening of letters of credit not only because of the negative impact it was having on domestic productivity (as many sectors rely on import of raw materials and semi-finished products) but also because donor agencies, including the International Monetary Fund (IMF), had, as per policies, insisted on the abandonment of this policy.

Imports in the first four months of 2024 (July-October) were USD 18.9 billion against USD 20.7 billion in the comparable period of 2025 — a rise of nearly 10 percent.

As part of the ongoing Fund programme, the authorities also agreed to implement severely contractionary monetary and fiscal policies that led to higher input costs relative to what exist among regional competitors.

The government’s claim that it has loosened monetary policy, given the almost halving of the discount rate since June 2024 to 11 percent, has had little positive effect in view of the fact that it is double the average of our regional competitors.

The drive to increase revenue by the incumbent Chairman of the Federal Board of Revenue (FBR) is through audit and while this is fully supported by Prime Minister Shehbaz Sharif as it should be, yet what is being overlooked is that this drive is largely focused on sales tax on specific sectors; notably, sugar mills, cement factories and still under consideration is to bring the fertilizer manufacturers under this ambit.

The fallout of this drive to-date is a massive increase in prices of these items payable by the consumers, a highly inflationary policy, and a factor in the rise of poverty levels to 42 percent in this country.

In the first four months of FY25 cumulative exports (goods and services exports) were USD 10.42 billion, while in the same period of the current year, FY26, exports rose marginally to USD 10.63 billion.

Exporters in the past were mollycoddled through the provision of major incentives in monetary and fiscal policies, as well as in electricity tariffs, to compete internationally. And even then as correctly noted by the Fund in its 10 October 2024 documents: “The government’s intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors.

Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.” Hence, this is no longer an option for the government if it wishes to avail of the next IMF tranche as well as the USD 16 billion rollovers/loans procured from the three friendly countries notably China, Saudi Arabia and the United Arab Emirates as well as other bilaterals and multilaterals.

The trade deficit cumulative July-October 2024 was negative USD 8.477 billion against negative USD 10.091 billion in the same period this year — a rise of 19 percent. In spite of a rise in remittance inflows — from USD 11,850.9 million July-October 2024 to USD 12,955.5 million in the same period this year or a rise of 9.3 percent — remittances, which like exports, are a desired form of earning foreign exchange the current account deficit widened. And what is extremely concerning is that this deficit is being met by external borrowing as in the past with foreign exchange reserves of USD 14,524.6 million as of 7 November 2025.

To conclude, there is a need to reduce reliance on borrowing externally as that makes the country vulnerable to policies that impact negatively not only on domestic economic policies but also in the international relations arena.

Copyright Business Recorder, 2025