Editorial
The current account (C/A) is a pivotal economic variable that, despite being brought under control, has come at a significant cost. The economy has ground to a halt, resulting in rampant unemployment and stunted growth. Without immediate and substantial reforms, the country’s only survival strategy is to drastically reduce imports. However, this is a far from ideal solution in an economy that has historically thrived on imports.
In February 2024, the current account showed a marginal surplus, and the deficit in 8MFY24 was less than a billion dollars, a quarter of the deficit in the same period last year. The government and the State Bank of Pakistan (SBP) were both determined to control the current account slippages last year as the SBP reserves were depleting, and financing the external gap had become nearly impossible. This is a clear indication that decisive action and substantial reforms can indeed stimulate economic growth and job creation.
The SBP increased the policy rate to 22 per cent in July 2023, the highest in the country’s history, and the currency massively depreciated around the same time. These policies have positively impacted the economy, and in most sectors, the demand for imports today is even lower than the restricted allowance last year. We must continue implementing policies that support economic growth, job creation, and a sustainable future for our country.
Agricultural exports, especially rice, are on the rise, which is due to better crop performance at home and India’s export ban. The encouraging trend is improved exports in other agro subsectors as well. However, manufacturing exports are not growing despite the massive currency adjustment, capacity expansion, and modernization under concessional TERF loans. The main impediment is ever-increasing energy tariffs owing to inefficiencies in the energy value chain and lopsided contracts with the IPPs.
The demand is deficient, reflected in the near-zero current account deficit position. We must focus on reversing this trend by investing in policies supporting job creation and economic growth. We must also implement a reform program to attract foreign investment and reverse the capital flight causing significant damage to the country’s economy.
The real catch is in the growth of ICT exports and freelancing services. IT exports are up by 15% to $2 billion in 8MFY24. However, many small and medium IT service providers remit their proceeds informally, while others still need to return all the money. Some services exports and remittances are netted off in the informal hundi/hawala market against the capital flight from the country. We must take immediate steps to address this issue and ensure that all revenue generated from exports is returned to the government and invested in policies that support economic growth and job creation.
In conclusion, the need for decisive action to promote economic growth, job creation, and a sustainable future for our country is more pressing than ever. This necessitates significant reforms and policies that foster investment, innovation, and job creation. While the current account deficit is under control, we cannot afford to rest. We must continue to implement policies that bolster economic growth and job creation to ensure a prosperous future for our country.
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