Prime Minister Imran Khan has asked his economic team to check the volume of the import of non-essential goods, including that of vehicles, as his government might face a challenge of an unmanageable current account deficit because of a projected record of $70 billion in imports this fiscal year.
The prime minister was briefed on the month-wise status of foreign inflows and outflows on Tuesday.
It is learnt that the discussion largely remained focused on the trade figures, which were “not very healthy” for the first month of the new fiscal year.
Both the net foreign direct investment and exports fell short of the government’s estimates for July but the imports were higher than its projections.
Overall, the premier expressed his satisfaction with the increase in the import of plants and machinery, but he asked the finance ministry and the State Bank to remain vigilant because of the surge.
Finance Minister Shaukat Tarin has reportedly taken the responsibility to ensure monitoring of all external inflows and outflows related indicators.
The finance ministry has estimated about $88 billion outflows this fiscal year but it also hopes to achieve $90 billion inflows, which include the $1.8 billion highly expensive loans under the Naya Pakistan Certificates scheme.
The $90 billion inflows include $14.2 billion foreign loans, excluding that from the International Monetary Fund (IMF).
There was a discussion as to whether or not the government should increase duties and taxes to check the import of non-essential goods but no final decision had been made.
The imposition of the regulatory duties, additional customs duties, and non-tariff barriers were commonly used tools by the central bank and the federal government to discourage imports during the first two years of the PTI government.
The premier inquired as to why the import of vehicles was increasing. His adviser on commerce replied that its share in the overall imports was not very high.
In July, the country imported 1,446 sports utility vehicles valuing Rs3 billion.
The Federal Board of Revenue (FBR) also received Rs4.3 billion in taxes on the import of these vehicles in a single month, according to official statistics.
The meeting was held three days after SBP Governor Dr Reza Baqir told the media that the current account deficit should be “talked about with happiness”.
“The current account deficit would be between 2 percent and 3 percent of GDP this fiscal year, which means roughly $6.5 billion to $9.5 billion,” he added.
The central bank was of the view that the import of machinery and plants would help increase exports in the longer run.
Pakistan’s trade deficit widened 85.5 percent to $3.1 billion in July. The imports increased by 48 percent to $5.4 billion, which became a cause of concern.
In comparison, exports increased only 16.4 percent to $2.3 billion in July 2021 as against $2 billion in the same month of the last year.
The commerce ministry informed the prime minister that it hoped that exports would pick up in the coming months on the back of additional incentives given to exporters.
The country did not have a current account deficit problem as long as it did not allow the economy to grow by keeping interest rates high, devaluing the rupee, and making fiscal adjustments.
The central bank has slightly upward adjusted its projection of imports to $64 billion in the current fiscal year against $70 billion estimates by the commerce ministry.
This discussion about external trade statistics is taking place within a month of the approval of the budget.
Against a range of $6.5 billion to $9.5 billion estimated by the SBP, the finance ministry was projecting over a $13 billion current account deficit – almost equal to the one recorded by the PTI government in its first year in power.
The PML-N government had left behind a $19 billion current account deficit that was equal to 6 percent of the GDP and a reason for Pakistan to seek the IMF loan.
Similarly, there are also differences of opinion between the commerce ministry and the SBP on the export data. The central bank projected $27 billion worth of exports in the current fiscal year while the commerce ministry placed it above $30 billion.
The sources said the projected net foreign direct investment figure of $2.65 billion also appeared on the higher side, given the trend in the first month.
The State Bank’s latest data showed that the country received only $90 million in foreign direct investment during July – down by 30 percent over the same month of the previous fiscal year.
A key reason behind the 30 percent drop in net direct investment was a 116 percent increase in outflows that reached $86.4 million last month.
The premier asked the Board of Investment to approach expatriates for new investment in the country.
The expatriates have so far helped the government by giving loans through Roshan Digital Accounts.
This month, the finance ministry also approved a subsidy of Rs13.1 billion for retaining the foreign remittances that are estimated over $31 billion as part of the $88 billion inflows.