Pakistan’s economists and analysts have given fair warnings about the macroeconomic vulnerabilities currently prevailing in the country. The country’s current account deficit has widened, foreign exchange reserves have gone significantly low, and fiscal consolidation has also slowed down. Thus it requires an effective policy from the government to turn things around and get rid of the said vulnerabilities.
Pakistan’s current account deficit has gone up from $4.86 billion in 2015-16 to $12.1 billion in 2016-17, marking an increase of almost 150%. The current year is also progressing on the same track as imports continued to dominate exports with $8.98 billion of imports and $3.93 billion of exports in the first three months of the year as current account deficit stood at $5.05 billion.
In order to cut down the deficit, the government of Pakistan has been looking to promote exports in the country and discourage imports so that the local industry can also flourish. Recently, the government increased duties on more than 350 items that extends to imported cars as well, so that export sector can get a boost with Rs. 180 billion export incentive package already announced by the government. One thing that exporters have been asking is to depreciate the currency to increase export bills, but the government is not in favor of that.
This current account deficit has been managed with the help of decrease in oil prices for the last three years. The decrease in the prices led to an increase in the demand by 13%. Another thing that went in Pakistan’s favor was the remittances that were at a record high, where overseas Pakistanis sent $19.3 billion in remittances in 2016-17, marking an increase of 3% on YoY basis.
But now with oil prices set to increase, Pakistan may not have the oil cushion it had for the last three years. Thus with the increase in oil prices, we may see a reduction in the demand for oil. IMF has warned that oil bills of many countries will go up by 30% at the current rate of consumption
Pakistan also needs increased capital investment and an effective tax collection system. Major investment is needed in the development of the youth that currently comprises of 63% of the population. Their education and health facilities should be the main target for the government as these basic necessities can bring about a change in the next 10 years.
In the agriculture sector, the government needs to ensure that proper water management is being done and that water is not wasted and is stored properly. For that end, building dams are of utmost importance so that water is not wasted during the rainy season and can be utilized for the agricultural sector. If all these things can be done, Pakistan’s economy can get well on track and macroeconomic vulnerabilities can be reduced.