ISLAMABAD: All estimates for reducing the growing current account deficit have been thwarted by rising international prices and Pakistan is now on course to reach a new historical high of $20 billion in deficit.
In the backdrop of Russia’s lingering war with Ukraine, rising POL and commodity prices on international markets have exacerbated the concerns of Pakistan’s economic managers.
When the Pakistan Tehreek-e-Insaaf (PTI) assumed power following the recent general elections, it consistently referred to the economy as ruined, claiming that the current account deficit had exceeded the $19 billion level in 2017-18.
Pakistan’s former finance minister and renowned economist Dr. Hafeez A. Pasha disclosed to The News that the current account deficit was heading towards a historic record by touching the $20 billion mark, or 6% of Gross Domestic Product (GDP) for the current fiscal year. He said that international prices were witnessing skyrocketing trends, and now the CAD would witness more pressure with the possibility of touching a historic high. He said that the CAD had already touched the $11.6 billion mark in the first seven months of the current fiscal year and now it was projected that it might go up to unprecedented levels of $20 billion versus $19 billion in the fiscal year 2017-18.
He said that the time had come to take steps to curtail imports without wasting time. For God’s sake, the political parties must shun their differences because the country is heading towards a serious financial crisis. Dr Pasha appealed to the Treasury and Opposition benches, saying that the country’s foreign currency reserves would begin to deplete at breakneck speed and could exceed the $7 billion mark, as seen in 2017-18 when the CAD reached $19 billion.
He also highlighted that the increasing gap between the Pakistan Bureau of Statistics (PBS) and FBR’s PRAL data on imports showed that the price surge might be playing a role in making payments on the pretext of fear that the prices might further escalate. The official data shows that the CAD widened to $11.6 billion in the first seven months of the current fiscal year, against a surplus of $1.028 billion in the same period of the last financial year of 2021. The current account deficit witnessed a record level of $2.6 billion in January 2022, which was the highest ever since 2008.
The official sources said that it was an official projection that imports would start witnessing declining trends from January 2022 because the uncertainty on the economic front would disappear after the announcement and approval of the mini-budget. The SBP officials also argued that they took measures to avoid the eruption of any crisis on external accounts and that things would be normalised in the second half of the current fiscal year. They had even raised questions about what would have happened if the government and the SBP had not taken policy actions.
On the one hand, the current account deficit was rising sharply, and on the other hand, the IMF projected that the country’s external debt servicing requirements would be touching $18.5 billion for the current fiscal year, compared to $11.9 billion in the last fiscal year. It is relevant to mention here that official repayments of both principal and markup were projected at $12.8 billion for the current fiscal year. The external debt repayment would stand at $17.8 billion, in line with the projections made by the IMF for the next financial year 2022–23.