Finance Division responds to write up on external, fiscal sector

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ISLAMABAD, Sep 28 (APP): The spokesman of the finance
division, responding to an article, “Twin Deficits” carried by a
section of the media clarified that widening of trade deficit during
FY 2017 needs to be seen in its true context.
In a clarification, he said it was mainly due to increase in
imports of machinery, industrial raw material and petroleum products
which was on account of increased investment activities and higher
development spending and also on account of CPEC related activities.
These investments would support higher growth in future.
Whereas, the decline in exports was due to slow economic
growth of our trading partners, which had now started picking up as
global economic environment had started improving. As per WEO IMF,
the global economic outlook improved from 3.1 to 3.5 percent.
Going forward, the government remains cognizant of challenges
and was taking measures as were necessary.
The external sector which was under pressure in last two years
due to stagnant exports and remittances had now started showing
positive and impressive growth both in exports and remittances.
The spokesman added that with regard to exports, recent data
suggested that the exports during July-August FY2018 posted an
impressive growth of 17.90 percent to $3.932 billion compared to $
3.335 billion of the corresponding period last year.
While during FY2017, imports increased by 17.8 percent.
Imports growth remained contained during the month of August by 9.1
percent over previous month which was 51.6 percent during July,
2017. Similarly, workers’ remittances had shown a growth of 13.18
percent during July-August, FY2018. The growth in FDI is also on
upward trajectory. During FY2018, FDI posted a stellar growth of 155
percent.
The writer had claimed that never in Pakistan’s history the
country had a current account deficit of $12.09 billion. It was
important to mention that the author of the article had not taken
into account the historical trend of current account.
History reveals that current account deficit remained highest
at US $ 13.9 billion during FY2008. Measuring current account
balance in absolute number was not comparable, however, it was
important to express it in terms of percentage of GDP.
During FY 2008, the current account deficit was the highest and
was recorded in terms of percentage of GDP at 8.2 percent and also
remained above 5.0 percent for a number of years.
The spokesman further said recent data suggests that the pace
can slow down thus showing an improvement in external account
position which was earlier under pressure. The argument was also
supported on the basis of month on month analysis of current
account. There was 73 percent improvement in current account deficit
as it reached US $ 550 million in August, 2017 compared to US $
2,051 million in July, 2017.
The spokesman went on to assert that recent pressure on
external account generated by widening of current account deficit was
only short term and would peak out this year as various energy and
infrastructure projects were completed.
Secondly, government was expecting much stronger inflows of FDI
and other private investments this year which will help to finance
current trade deficit. Thirdly, the government was taking necessary
corrective measures to manage imports by introducing regulatory
duties and tariff adjustments.
Measures to strengthen Pakistan Remittances Initiative to
increase worker’s remittances were also being implemented. The
Export Package of Rs. 180 billion was being implemented to achieve
substantial increase in exports this year.
Further corrective measures were also being rolled out shortly
which will stabilize the present pressure on external sector of the
economy.
With regard to fiscal deficit, the writer claimed that the
fiscal deficit in FY2017 reached all time high of Rs.1863 billion in
absolute terms which was equivalent to Rs.60,000 per family. In this
regard, it was to mention that many countries borrow funds from
domestic and international markets to finance their development
expenditure.
This was a good economic theory as cheaper loans were acquired
to finance high return public investments. For example, the
government’s resolve to end load shedding in the country required a
considerable investment in a number of energy projects. To finance
these investments, the government acquired cheap loans and mobilized
private investment.
The writer has also claimed that the fiscal deficit of Rs.1863
billion excludes the amount of Rs.250 billion that the government
owes as refunds to taxpayers. This is incorrect. The tax revenue of
Rs.3361 in FY2017 that the Ministry of Finance released on its
website does not include refunds.
The writer has claimed that the liabilities created by Public
Sector Enterprises e.g loans of Rs.173 billion and circular debt
liabilities of Rs.400 billion should be included in the government’s
fiscal deficit.
The Spokesman clarified that PSEs operate as commercial
entities and are not a charge on federal budget.
Firstly, this is not a budgetary practice where liabilities of
public entities are made part of the government’s fiscal deficit. In
such case the income of these entities should also be made part of
the government’s revenues.