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Rising current account deficit and its impact.

Byline: S. Kamal Hayder Kazmi

Various economists identified in their research reports that the existence of great and persistent current account deficit is always looked with large concerns, as it usually leads an economy to a state of insolvency because of building up excessive net foreign debt. They also identified that the current account is also a variable that is both a broad reflection of the stance of macroeconomic strategies and a source of information about the behavior of economic agents in any state. It impacts not only alters in a country's trade flows, but also the difference between a country's saving and investment gap.

Furthermore, the current-account balance can also be showed as the addition to a country's claims on the rest of the world. Hence, movements in current account convey information about the actions and predictions of all market participants in an open economy.

CURRENT ACCOUNT DEFICIT IN PAKISTAN (% of GDP)

Year###%###Year###%

1960s###2.37###2005-06###3.29

1970s###4.75###2006-07###5.3

1980s###3.93###2007-08###5.81

1990s###4.52###2008-09###4.98

2000-01###0.11###2009-10###2.13

2001-02###1.9###2010-11###0.1

2002-03###3.83###2011-12###2.1

2003-04###1.34

###2012-13###1.1

2004-05###0.83

According to the present statistics issued by the State Bank of Pakistan (SBP), the current account deficit of Pakistan considerably increased to $10.826 billion during the current fiscal year 2017-18 so far (July-February) as against to $7.216 billion in the corresponding period in previous fiscal year. The country's economists revealed that unluckily the Government of Pakistan's inability to address the growing concerns related to falling exports, ballooning external borrowing, and worrisome debt management along with failure to enhance government revenues have put the government in a tough situation. Furthermore, economists also mentioned that in the absence of adequate trade policies, despite the much-talked-about depreciation in rupee, Pakistani exports did manage to increase by 11 percent during the current fiscal year 2018, but it failed to avert the trade deficit. The growing gap between imports and exports has even worsened the condition as per the statistics issued in March 2018.

Our country's adepts have put forward a mechanism to enhance the exports condition. Different Pakistani sources mentioned that the five constraints which hamper the export position includes complex local and trade taxes regime, overvalued exchange rate, regulatory complexities, higher unit cost of energy, fuel, and gas in comparison to competitor economies and weak trade facilitation.

The Pakistan Bureau of statistics (PBS) published that based on the provisional statistics of imports and exports the balance of trade in February, 2018 was recorded US (-) 2,895 million dollars. The balance of trade figures cumulative from July-February, 2017-18 were recorded (-) 24,250 million in US dollars.

International Monetary Fund (IMF) in its first post program monitoring discussions with Pakistan declared that Pakistan's near-term viewpoint for economic growth is broadly favorable. But, at the same time, it concluded that against the background of growing external and fiscal financing requirements and falling reserves, risks to the country's medium-term capacity to repay the Fund have increased since completion of EFF (Extended Fund Facility) arrangement in September 2016.

Though the Government of Pakistan has enough finance to cover few months ahead in short term, in the medium term it faces various issues. Furthermore, ever-rising circular debt in energy sector and woeful spending in an election year in development programs to woe the voters has augmented the challenges for the incumbent government. Initially, the government had unnaturally kept its currency stable which may have affected the exports dearly along with failure to formulate strategies to bolster exports. Despite the provision of agriculture subsidy, the depreciated rupee is unable to pay off the bulging twin deficit and growing debt and liabilities. But the present government of Pakistan is predicted to enhance the current account deficit by depreciating rupee even more than current 9.5 percent cumulative loss in rupee valuation, since December, to enhance the current account deficit.

Conclusion

It is said that the fiscal indiscipline and failure to implement structural reforms and inadequate trade policy did not help the cause. Pakistan may not be in a position to have enough resources, which could be assigned for infrastructure and inclusive development. Moreover, because of widespread corruption and underutilization of loans on asset building, it may not be able to enhance the financial perils for the country as it continues to go in circles. The depreciate rupee also impact on current account. Pakistani trader must export 100 percent quality of a product to remove the current account deficit.
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Publication:Pakistan & Gulf Economist
Geographic Code:9PAKI
Date:Apr 8, 2018
Words:849
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