Govt. cognizant of all challenges; external sector showing impressive growth in exports

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ISLAMABAD, Sep 30 (APP): The government is cognizant of all
economic challenges and its external sector has started showing
positive and impressive growth both in exports and remittances.
Responding to write up `Twin Deficits’ on external, fiscal
sector issues carried by a section of the media, the spokesman of
Finance Division has clarified that widening of trade deficit during
FY2017 needs to be seen in its true context.
It is mainly due to increase in imports of machinery,
industrial raw material and petroleum products which is on account
of increased investment activities and higher development spending
and also on account of CPEC related activities.
These investments will support higher growth in future.
Whereas, the decline in exports was due to slow economic growth of
our trading partners, which has now started picking up as global
economic environment has 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 is taking measures as are necessary. The external
sector which was under pressure in last two years due to stagnant
exports and remittances has now started showing positive and
impressive growth both in exports and remittances.
The spokesman said that with regard to exports, recent data
suggests that the exports during July – August FY2018 posted an
impressive growth of 17.90 percent to $3.932 billion compared $
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 have 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 has claimed that never in Pakistan’s history the
country had a current account deficit of $12.09 billion. It is
important to mention that the author of the article has 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 is not
comparable, however, it is important to express it in terms of
percentage of GDP. During FY2008 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 is also
supported on the basis of month on month analysis of current
account. There is 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 asserted that recent pressure on external
account generated by widening of current account deficit is only
short term and will peak out this year as various energy and
infrastructure projects are completed.
Secondly, Government is expecting much stronger inflows of FDI
and other private investments this year which will help to finance
current trade deficit.
Thirdly, the Government is 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 are also being
implemented.
The Export Package of Rs. 180 billion is being implemented to
achieve substantial increase in exports this year. Further
corrective measures are 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 is equivalent to Rs.60,000 per family.
In this regard, it is to mention that many countries borrow
funds from domestic and international markets to finance their
development expenditure.
This is a good economic theory as cheaper loans are 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.