By: Javed Iqbal
The hasty agreements made with the IMF during the previous regime have trapped Pakistan in the grip of inflation, poverty and high debt.
The current economic situation in Pakistan is seemingly the worst in chronicled history. In such a situation, where the country is muddling amid an economic crisis, the circumstances are getting worse constantly. Pakistan’s trade deficit has escalated to an alarming level. The hasty agreements made with the IMF during the previous regime have trapped Pakistan in the grip of inflation, poverty and high debt. Still and all, the current coalition government is not mulling over how to manage the country in these dire circumstances. While discerning at the trade deficit 2022, the gap is growing rather than being reduced in the context of the recent flooding too.
Rapid increase in the trade deficit led to high imports in country
On the first hand, the increase in the country’s exports is being considered as a welcome development in the foreign trade sector. But, on the other hand, in the first six months of this financial year, the country’s trade deficit has jumped by more than 100 percent. Whereas, in the last 8 months, the trade deficit has grown by almost 25 billion dollars. This bitter fact of Pakistan’s degraded economic situation could also bring substantial negative impact on the international market. Due to this enormous increase in the trade deficit, the country’s imports have increased by more than sixty percent, which has increased to more than 40 billion dollars in six months.
Pakistan’s trade deficit has increased by 100pc in such a turbulent time where the country is facing immense difficulties due to deterioration in the balance of external payments. And, due to this, it has to rely on external elements to get money. Nevertheless, Pakistan’s program from the International Monetary Fund (IMF), has already triggered a wave of inflation in the country due to its strict conditions.
Why is the trade deficit increasing?
Major increase in imports is due to higher imports of petroleum, automobiles and food items. Obviously, import of petroleum products has contributed to widening the trade deficit. In the first six months of the current financial year, the reason for the 100% increase in trade deficit is that ‘Imports grow more than three times faster than exports’. In these six months, if exports increased by 25%, compared to this, the increase in imports has been 63%. Experts in the field of international trade maintain that the major increase in imports is due to higher imports of petroleum, automobiles and food items. And, especially the higher prices of petroleum products at the global level have increased the country’s imports on a large scale.
The experts say that even so exports have also increased. However, the increase in imports is very high, which is a sign of risk for the foreign trade sector of the country. There is a dire need to increase exports. Unless we increase our country’s exports, we will not be able to ensure the repayment of external debt. Rather, we will live under the pressure of debts. And, Pakistan could suddenly reach the peak of dangerous default.
Here it is pertinent to understand that as per experts, the import of raw materials used in domestic export goods has also increased the imports. However, let’s see whether the dollars spent on the import of raw materials are returning to the country in the form of goods manufactured from these raw materials or not. Experts say the import of petroleum products has contributed to widening the trade deficit. However, import of machinery also has a major share in this scenario.
Why are exports important?
Exports, foreign direct investment and remittances are sources of bringing capital from abroad.
Why are exports important for any country and what impact does it have on the economy? Experts state that any country has three means of bringing capital from the foreign world. Export is one of them. Exports; the capital should be brought into the country by selling the products produced in the country in foreign markets.
The other two sources in this regard are foreign direct investment and remittances. Among these three sources, exports retain more value. The reason for this is that when domestically produced products are in surplus, And, they can also be exported to foreign countries, on the one hand, capital from the outside world, which is currently brought into the country in the form of international currency dollars, makes the production sector more dynamic and the growth rate of the country’s economy increases and employment opportunities are also created for people. When exports increase more than imports, the trade balance becomes surplus, which is favorable for the country. That is, more dollars are coming from abroad than the dollars going outside the country.
Why is there not a big increase in exports?
High imports and low exports contribute to trade deficit in Pakistan .
Pakistan’s trade deficit is widening due to high imports and low exports. The reason why there has not been a big increase in exports is that there have been some fundamental problems with the export sector in the country, due to which the sector has not been able to perform at the pace it would have outpaced imports on. Similarly, gas and electricity prices also increased the cost of the sector and reduced its competitiveness in the international market. Pakistan’s widening trade deficit has put a lot of pressure on the country’s current account, which has reached seven billion dollars in the first five months of the current fiscal year. The current account aggregates the dollars coming in from exports, remittances and outward investment to see where the total dollars received from them stand against the dollars going abroad in the form of imports and debt repayments. If fewer dollars are coming in and more are going out, it means the country’s current account is in deficit.
This year, Pakistan needs more than $23 billion in external payments, for which Pakistan has agreed to release a $1 billion tranche from the IMF on strict terms, after the release of other international financial institutions. Institutions like the World Bank and the Asian Development Bank could l start providing loans. Current account deficit of the country needs to be controlled at present, but due to huge increase in imports, this deficit is increasing.
Why is Pakistani currency witnessing a high challenge?
A high increase in domestic imports is also putting pressure on the Pakistani rupee. While reviewing the economic situation, Pakistan is suffering from a severe economic and financial crisis since the beginning of 2022. While the war and struggle for power of the so-called prominent political parties is getting worse each day.
Every succeeding government accuses the previous government and gifts the country a new crisis .Parties aspiring to civilian supremacy are scrambling to support and aid the military establishment and trying to outdo each other. On the other hand, the people are sinking into the mire of problems day by day owing to poverty, inflation, and unemployment. As a result of this political distraction, confrontation and absurd narratives, Pakistan is in the grip of such a multifaceted crisis, from which the ruling classes do not see any way forward. Every succeeding government blames the previous government and leaves the country with a new crisis. But, unfortunately, no comprehensive plan is made to overcome these economic difficulties.
Which is the biggest problem of Pakistan?
Political instability or economic crisis? What are the people’s expectations from the leaders of the country? Immediate focus on what? economic recovery or political stability? In this regard, the common Pakistani is in a difficult situation. There is a well on one side and a ditch on the other. The biggest problem of Pakistani people is the economic crisis. presently, the people of Pakistan have neither employment opportunities nor any help from the state. The continuous increase in the value of the dollar against the rupee, inflation and the continuous increase in the prices of petroleum, the hike in electricity rates and the increase in the prices of food and beverages have made it difficult for the people to live.
It goes without saying that political stability can only guarantee a better economy. But, for this stability, the political leadership of Pakistan ought to understand that if the country is stable, then the field of politics will also remain progressive. At this time, there is a need to gather economic experts from all over the country to control the current economic crisis of the country. Such a situation should be created in the country that along with political stability, law and order should also be closely monitored so that the confidence of investors from abroad may increase. Because, the genie of terrorism in KPK and Balochistan is once again trying to get out of the bottle, which can lead to a big tragedy for Pakistan in these difficult economic conditions. As Pakistan does not have dollars in reserve, the continued depreciation of the rupee is worrying.
How can the country run on the dollars kept in the State Bank of Saudi Arabia and China?
For the time being, the help of both the countries is appreciable, but do we have to do something ourselves or do we have to walk with the help of crutches? But it should be remembered that one cannot walk for long with the help of crutches. We need to understand the economic emergency at this time and solve this problem.
If we examine the State Bank carefully,
If the SBP raises interest rates to support the value of the currency, it will affect the goals of economic development. Moreover, some of our imports are unstoppable, like petroleum or wheat, which are things we have to buy anyway. However, the government will have to try to increase its exports. In the past, dollars from one of our neighboring countries used to come to Pakistan, but at present, 5 to 8 billion dollars are going out of our country on a daily basis. Decisions have to be made.
