It is depressing to see that current account (C/A) deficit of the country continues to increase. According to the latest data released by the State Bank, the C/A deficit widened by more than 120 percent to dollar 5.47 billion during the first eight months of the current fiscal (July-February, 2017) as compared to dollar 2.48 billion recorded in the same period of last year. The increase in deficit was attributable mainly to the rise in trade and services deficits together with a fall in home remittances. The deficit in trade account amounted to dollar 15.4 billion in July-February, 2017, up 26.8 percent from a year ago and this was the result of an increase in imports by 11.2 percent and a drop of 2 percent in exports. Service sector's exports were recorded at dollar 3.5 billion as against the imports of dollar 5.5 billion, resulting in a deficit of dollar 2 billion as against the deficit of dollar 1.9 billion in the corresponding period of last year. Home remittances which have been contributing massive support to C/A balance declined to dollar 12.3 billion in the ongoing fiscal year as against dollar 12.6 billion in the same period of last year. The current account deficit stood at 2.6 percent of GDP in July-February, 2017 as compared to 1.3 percent during the same period of last year and if this trend continues, overall C/A deficit could be nearly as high as 3.9 percent of GDP in 2016-17.

The worsening of C/A deficit is of course a matter of great concern because of its severe implications for the level of foreign exchange reserves of the country, value of the rupee, investor confidence, inflation, etc. The fact that these aggregates were not adversely affected so far was due to certain one-off receipts or short-term borrowings like the receipts from Eurobond and Sukuk auctions, CSF inflows, etc. As these sources are not sustainable, Pakistan obviously has no other alternative but to increase exports, contain imports and raise remittances not only to have a proper balance in the foreign sector but to have enough foreign exchange to service the rising level of external debt. However, the obstacles in making the necessary headway in these areas are quite formidable. Expanding exports, for instance, is going to be quite challenging in view of the protectionist tendencies in the US and the European Union, trade restrictive measures in most of the other countries, subdued productivity of the economy due to a variety of factors and loss of competitiveness in the international market. The government has announced certain relief packages for expert-oriented sectors like textile and clothing but exports continue to slide, nonetheless. As far as imports are concerned, SBP has recently imposed a 100 percent cash margin requirement to contain the imports of about 400 non-essential items such as mobile phones and household electrical appliances but any decline in their import is expected to be offset by higher imports under the China Pakistan Economic Corridor (CPEC). Home remittances too constitute a formidable challenge. Low oil prices have forced oil-rich nations of the Middle East to reduce their spending on infrastructural development, resulting in job losses and reduced disposable income for the Pakistani expatriates.

Although the country is facing a grim situation on the external front, our policymakers do not appear to be much concerned about the vulnerabilities of the foreign sector. They seem to believe that there is no real cause of worry because the challenge of widening C/A deficit could be overcome through more foreign loans. Such a policy is not only unsustainable but will force the country to borrow heavily from abroad, drawdown its reserves and negotiate another programme with the IMF. In our view, government needs to act proactively before reaching such a stage. Exports have to be enhanced substantially by improving the growth rate of the economy by well over 5 percent and by letting the Pak rupee find its true value in the exchange market freely in order to increase Pakistan's competitiveness in the international market. Tariffs and customs duties need to be reviewed to reduce imports, particularly of non-essential items. Pakistan Remittance Initiative has lost its steam and needs to be improved urgently to raise remittances while government should try to negotiate with friendly Middle Eastern countries not to retrench our labour force. In short, authorities of the country need to work harder on a number of fronts to remove the growing weaknesses in the external sector without any further loss of time.

Copyright Business Recorder, 2017