PR No. 205 Finance Division Responds to Write up on External, Fiscal Sector Issues Islamabad: 28th September 2017

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.