The writer, spokesman contended, has highlighted external financing requirement of $ 17 billion and projected current account deficit of $ 11 billion for the year 2017-18. Consequently, the foreign exchange reserves could fall to $ 9 billion by end 2017-18. The spokesman disagreed with Dr Pasha's contention, saying it is neither based on facts nor does it appropriately report the correct analysis of the economy recently released by the IMF. In fact, the writer has chosen to ignore the positive side of Fund's assessment and has focused only on interpreting the potential challenges to the economy highlighted by the Fund.
"The International Monetary Fund and the Government of Pakistan recently concluded Article IV consultations. The Fund has endorsed the positive and favourable outlook for economic growth, with real GDP estimated to grow at 5.3 percent in 2016/17. The Fund has projected that Pakistan's economy backed by acceleration in investments under CPEC, improved availability of energy and growth supporting structural reforms will strengthen GDP growth to 6 percent in the coming years. Achievement of 6 percent growth in coming years will indeed be remarkable since this level of growth will be achieved in 13 years. Inflationary pressures are contained and under control. However, the Fund has also pointed to certain risks to the stability in future. In particular, widening of budget deficit and current account deficit together with decline in foreign exchange reserves has been highlighted.
"The government of Pakistan understands that these are mid-course corrections which are taking place in the macroeconomic framework while overall there is no reversal from the path of stabilization. The Government is aware of the challenges going forward and is firmly committed to maintaining macroeconomic stability while achieving pro-poor inclusive higher economic growth of 7 percent in medium term. Inflation has been brought down from 12 percent between 2008/13 to 2.86 percent last year and this year is expected to be contained between 4.0-4.5 percent. Fiscal deficit was reduced from 8.2 percent to 4.6 percent last year and expected fiscal deficit this year is even lower than the last year. Reduction in fiscal deficit has been achieved by stringent expenditure controls and achieving historic increase of about 80 percent in tax revenue collection over the last years. Consequently, tax to GDP ratio increased to 13.2 percent this year from 9.8 percent in 2013.
"During the year 2016-17 there has been significant widening in the current account deficit. This widening in the deficit is due to over 40 percent increase in import of energy ,construction ,textiles and agriculture related machinery to fulfil the growing needs for infrastructure and energy related projects. This is indeed a healthy trend as it will enhance the productive capacity of the economy and generate growth.
"However, the current account deficit is largely being financed through FDI inflows and CPEC related investments. Similarly, the writer's apprehension that CPEC related payments will create a burden for the external account is not correct. Out of the total capital outlay of $55 billion, about $35 billion will be for energy related projects which will come in the form of FDI and other investments over the next seven years. The balance $20 billion will come as long term concessional bilateral assistance and its repayment is spread over the next twenty years. As such it does not pose a major burden on Balance of Payments.
"The writer's assessment of financial meltdown in 2017-18 and decline in foreign exchange reserves to $9 billion is misleading and is not based on facts. In terms of Balance of Payments projections concluded under Article IV consultations, SBP reserves at end period 2017-18 are projected to be $18.88 billion as against the writers' estimation of $9 billion. Similarly, the writer estimates that current account deficit for 2017-18 will be $11 billion whereas our projections place this deficit at $10 billion and amortization during the year will remain below $4 billion as against author's estimation of $6 billion. It may be noted that the current account deficit is fully manageable based on surplus of $11 billion in both financial and capital accounts for the year 2017-18."
Copyright Business Recorder, 2017