The Federation of Pakistan Chambers of Commerce and Industry has hailed the government’s efforts to control Pakistan’s current account deficit, leading to a surplus of $424 million in July 2020, the fourth monthly surplus since Oct 2019, warning the economic mangers that ‘surplus account balance’ must not be at the cost of negative economic growth.
FPCCI President Mian Anjum Nisar said that country’s current account balance has swung into a surplus of $424 million in July 2020 after posting a deficit of $100 million in June. This transformation from deficit into surplus is due to some recovery in exports and increase in remittances with support from several policies and administrative initiatives taken by the central bank and FPCCI appreciates these initiatives.
“But it is also the fact that the massive decline in imports has slowed down overall economic activities, ultimately hitting the GDP growth rate, he said adding the drop in current account deficit is a big achievement as a sign of macroeconomic stability but it is never beneficial for industrial growth-the real indicator of economic performance and development of a nation.
According to reports, contrary to the positive projection of GDP growth rate of 2.3 percent by the government, the World Bank had projected negative -1 percent GDP growth for Pakistan in 2020-21. The WB stated that policy adjustments in Pakistan is to address macroeconomic imbalances weighed on aggregate economic growth.
Moreover, the State Bank of Pakistan, in its Third Quarterly Report FY20 also estimated that Pakistan’s real GDP growth is set to contract at 0.4 percent in FY20. The report emphasized that the estimated contraction in GDP owes mainly to a decline in industrial and services sector activities.
Mian Anjum Nisar argued that the current account surplus must have been based on growth in exports, resulting into growth in industrial production as well as employment generation.
But unfortunately the present turnaround is largely due to the drop in imports, leading to an incisive slowdown in growth after unprecedented hike in markup rates in the past and rupee devaluation of over 45 percent, which sent shockwaves through the economy. The industry raw material which is even not being manufactured in the country has also been included in list of high import duties.
The government claims that stabilization and improvement were witnessed in last two years in macroeconomic indicators, as significant improvement was made in reducing trade and fiscal deficit, current account deficit, increasing foreign direct investments, some enhancement in revenue collection, improved debt management and ensuring financial discipline.
“The FPCCI is happy that the government succeeded in narrowing down the deficit from a historic high of $19.89 billion in FY18 to $13.83 billion in FY19. Though this massive fall helped government lower the current account deficit, yet on the other, it had also been slowing down the overall economic activity in Pakistan before emerging of corona pandemic worldwide.”
The figures endorse the FPCCI’s view that the large decline in imports has been the real force behind the reduction in the deficit because exports went up nominally, he added. He observed that the surplus in balance of payment is definitely a positive omen for the government, which is struggling with slow economic growth and high inflation.
However, despite massive decline in rupee’s value, the country’s exports have failed to record any visible improvement. The GDP growth declined from 5.5 percent to almost 3 percent last year before corona, indicating that government managed to ease current account deficit by chocking the economy.
The surplus may be pleasant news for multilateral lenders including the International Monetary Fund, since the dollar denominated loans are safer now. But, at the same time this has been achieved at the cost of a sharp slowdown in the economy that has caused millions of jobs.
FPCCI President said that the government’s harsh import policy along with high cost of doing business due to continued hike in fuel rates and energy tariffs had almost halted the industrial production.
He said that for the first time during the decade, the growth in large-scale manufacturing was restricted to 3.5% in the last fiscal year after almost all major industries reporting decline in their output, raising concern over a deepening economic slowdown and a widening unemployment ratio.
He emphasized upon the need for continued process of institutional reforms, ensuring financial discipline with a view to consolidate the process of stabilizing economy. Structural transformations are required in all sectors, including agriculture, industry and services, to improve productivity and export competitiveness.