The
spokesman of the Finance Division, responding to an article, "Twin
Deficits" carried by a section of the media clarified that widening of
trade deficit during FY2017 needs to be seen in its true context. It is mainly
due to increase in imports of machinery, industrial raw material and petroleum
products which is on account of increased investment activities and higher
development spending and also on account of CPEC related activities. These
investments will support higher growth in future. Whereas, the decline in
exports was due to slow economic growth of our trading partners, which has now
started picking up as global economic environment has started improving. As per
WEO IMF, the global economic outlook improved from 3.1 to 3.5 percent.
Going
forward, the government remains cognizant of challenges and is taking measures
as are necessary. The external sector which was under
pressure in last two years due to stagnant exports and remittances has now
started showing positive and impressive growth both in exports and remittances.
The
spokesman added that with regard to exports, recent data suggests that the
exports during July – August FY2018 posted an impressive growth of 17.90
percent to $3.932 billion compared $ 3.335 billion of the corresponding period
last year. While during FY2017, imports increased by 17.8 percent. Imports
growth remained contained during the month of August by 9.1 percent over
previous month which was 51.6 percent during July, 2017. Similarly, workers' remittances have
shown a growth of 13.18 percent during July-August, FY2018. The growth in FDI
is also on upward trajectory. During FY2018, FDI posted a stellar growth of 155
percent.
The writer has claimed that never in Pakistan’s history the country had a
current account deficit of $12.09 billion. It is important to mention that the
author of the article has not taken into account the historical trend of
current account. History reveals that current account deficit remained highest
at US $ 13.9 billion during FY2008.Measuring current account balance in
absolute number is not comparable, however, it is important to express it in
terms of percentage of GDP. During FY2008 the current account deficit was the
highest and was recorded in terms of percentage of GDP at 8.2 percent and also
remained above 5.0 percent for a number of years.
The spokesman further said recent data suggests that the pace can slow down
thus showing an improvement in external account position which was earlier
under pressure. The argument is also supported on the basis of month on month
analysis of current account. There is 73 percent improvement in current account
deficit as it reached US $ 550 million in August, 2017 compared to US $ 2,051
million in July, 2017.
The
spokesman went on to assert that recent pressure on external account generated
by widening of current account deficit is only short term and will peak out
this year as various energy and infrastructure projects are completed.
Secondly, Government is expecting much stronger inflows of FDI and other
private investments this year which will help to finance current trade deficit.
Thirdly, the Government is taking necessary corrective measures to manage
imports by introducing regulatory duties and tariff adjustments.
Measures
to strengthen Pakistan Remittances Initiative to increase worker’s remittances
are also being implemented. The Export
Package of Rs. 180 billion is being implemented to achieve substantial increase
in exports this year. Further corrective
measures are also being rolled out shortly which will stabilize the present
pressure on external sector of the economy.
With regard
to fiscal deficit, the writer claimed that the fiscal deficit in FY2017 reached
all time high of Rs.1863 billion in absolute terms which is equivalent to
Rs.60,000 per family. In this regard, it is to mention that many countries
borrow funds from domestic and international markets to finance their
development expenditure. This is a good economic theory as cheaper loans are
acquired to finance high return public investments. For example, the
government’s resolve to end load shedding in the country required a
considerable investment in a number of energy projects. To finance these
investments, the government acquired cheap loans and mobilized private
investment.
The writer
has also claimed that the fiscal deficit of Rs.1863 billion excludes the amount
of Rs.250 billion that the government owes as refunds to taxpayers. This is
incorrect. The tax revenue of Rs.3361 in FY2017 that the Ministry of Finance
released on its website does not include refunds.
The writer
has claimed that the liabilities created by Public Sector Enterprises e.g loans
of Rs.173 billion and circular debt liabilities of Rs.400 billion should be
included in the government’s fiscal deficit. The Spokesman clarified that PSEs
operate as commercial entities and are not a charge on federal budget. Firstly,
this is not a budgetary practice where liabilities of public entities are made
part of the government’s fiscal deficit. In such case the income of these
entities should also be made part of the government’s revenues.
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