The government for long has been claiming tremendous success on the economic front. Selected articles published in international publications are often cited to reinforce the claims that Pakistan is fast becoming a regional economic power. Foreign exchange reserves inflated due to borrowing and remittances are also cited as a success of government’s economic policy. The performance of the stock exchange is also cited as a testament to government’s success. If that is not all the government also projects the billion dollars China Pakistan Economic Corridor project as a project that will altogether transform the country’s destiny. The government so far has provided very little detail about the details of various projects executed under the project.
According to a recent report published in a newspaper the Pakistan Business Council (PBC) chief executive officer Ehsan Malik has claimed that the industry and the people are still in the dark regarding the terms of the deal signed almost two years back. The new report quoted Malik of saying, `We are being told by the government that the CPEC is a`gift horse` from China. But who knows? It could turn out to be a Trojan horse for us. Unless the government ensures transparency in the deals it has made with the Chinese, the concerns will continue to rise.
Now coming to the frightening case of the ever growing trade deficit, according to a recent report by the Pakistan Bureau of Statistics Pakistan’s trade deficit widened to a record high of $20.2 billion during the eight months of the ongoing fiscal year, an amount $5.2 billion higher than the deficit recorded in the comparative period of the previous year and equivalent to the annual projections for the entire fiscal year. The mushrooming is likely to expose vulnerabilities of Pakistan’s economy, as financing such a huge gap in the midst of falling remittances and sluggish foreign direct investment has become a challenge for the federal government. The growing deficit will inadvertently mean more reliance on foreign borrowing. The trade deficit has been on an upward trajectory for many years owing to the liberalization of the import regime while exports continue to remain stagnant.
Now in order to curb the growing deficit the State Bank of Pakistan (SBP) imposed a 100 per cent cash margin on the import of a number of consumer items. According to SBP the cash margin requirements are aimed at containing the burgeoning trade deficit and to accommodate the growing import of productive goods. To understand the context, it should be noted that despite substantial reduction in oil import payments in FY14-FY16, Pakistan`s overall import bill largely remained unchanged.
The step will put a stop to the ever growing import bill but this is only a temporary step. Long term steps like moving towards import substitution and increasing exports are necessary to ensure that the trade deficit is limited.
What is worrying is that for now the government doesn’t seem interested in accepting that the growing trade deficit is a problem that can be devastating for Pakistan’s economy. On one hand the government claims that Pakistan is eying 150 billion dollars exports by 2025 under Vision-2025. Whereas on the other hand the facts speak otherwise, Pakistan’s exports have been stagnant, in fact shown a downward trend over the past three years. The problem will only get worse if emergency steps are not taken in this regard.