Pakistan is likely to face a historic record of $20 billion current account deficit due to rising international prices.
The ongoing war between Russia and Ukraine has multiplied the worries of Pakistan’s economic managers owing to rising POL and commodities prices in the global markets.
When the Pakistan Tehreek-e-Insaaf (PTI) came into power in 2018, it had always labeled the economy as destroyed because the current account deficit had touched $19 billion mark in 2017-18.
Pakistan’s former finance minister and noted economist Dr Hafeez A Pasha told a leading media outlet that the current account deficit was heading towards a historic record by touching the $20 billion mark or 6 percent of Gross Domestic Product (GDP) for the current fiscal year.
He said that the international prices were witnessing skyrocketing trends and now the CAD would witness more pressure with the possibility of touching a historic high. It has already touched the $11.6 billion mark in the first seven months of the current fiscal year and now it was projected that it might go up to unprecedented levels of $20 billion mark against $19 billion in the fiscal year 2017-18.
Dr Hafeez said that the time had come to take steps to curtail imports without wasting time. “For God’s sake, the political parties must shun their differences because the country is heading towards a serious financial crisis,” he appealed to the treasury and opposition benches and added that the foreign currency reserves would start depleting at supersonic speed and it might go beyond $7 billion mark as the country had witnessed in 2017-18 when the CAD had touched the $19 billion mark.
He also highlighted that the increasing gap between the Pakistan Bureau of Statistics (PBS) and FBR’s PRAL data on imports showed that the price surge might be playing a role in making payments on the pretext of fear that the prices might further escalate. The official data shows that the CAD widened to $11.6 billion in the first seven months of the current fiscal year against a surplus of $1.028 billion in the same period of the last financial year 2021. The Current Account Deficit witnessed a record level of $2.6 billion in January 2022, which was the highest ever since 2008.
The SBP officials said that it was an official projection that the imports would start witnessing declining trends from January 2022 because the uncertainty on the economic front would disappear after the announcement and approval of the mini-budget.
They also argued that they took measures to avoid the eruption of any crisis on external accounts and things would be normalised in the second half of the current fiscal year. They had even raised questions about what would have happened if the government and the SBP had not taken policy actions.
On the one side, the current account deficit was rising sharply and, on the other hand, the IMF projected that the country’s external debt servicing requirement would be touching $18.5 billion for the current fiscal year against $11.9 billion in the last fiscal year. It is relevant to mention here that official repayments of both principal and markup were projected at $12.8 billion for the current fiscal year. The external debt repayment would be standing at $17.8 billion in line with the projections made by the IMF for the next financial year 2022-23.