PM Abbasi rules out devaluation, but will cut ‘unnecessary’ imports

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NEW YORK, Aug 28 (APP): Prime Minister Shahid Khaqan Abbasi has
scotched speculation of devaluation of the rupee, saying his government
is instead looking to curb imports through tariffs and help boost local production.
“Devaluation is our option, theoretically, even though it should
incentivize exports but in reality it doesn’t,” Abbasi said in an
interview with Bloomberg News, a New York-based international news
agency, at the former house of Quaid-e-Azam Muhammad Ali Jinnah in
Karachi. “So at this moment as I said devaluation is not on the table.”
Pakistan’s current account gap more than doubled to $12.1 billion
in the year ended June while its trade deficit surged to a record $33 billion as imports climbed, Bloomberg News said in the dispatch.
The nation’s reserves have plummeted by a quarter to $14.3 billion
since reaching a peak in October, while the rupee has remained stable.
As a share of the economy, the nation’s 2.9 per cent projected
current account gap compares with 1.5 per cent in India and 1.9 per cent
in Indonesia, according to International Monetary Fund estimates.
Abbasi said his government, which took over after his predecessor
Muhammad Nawaz Sharif was ousted by a court ruling, would focus on
cutting “unnecessary” imports.
Despite pressures, the dispatch said Pakistan’s currency had been
resilient with help from central bank interventions. “It is the most
stable currency in Asia since 2014,” according to data compiled by
Bloomberg News.
“It is only a question of when, not if, the rupee will depreciate,” Firat Unlu, an analyst at the Economist Intelligence Unit in London,
was quoted as saying. “A weaker currency is needed to correct the
imbalances in the external sector and stem the drop in foreign-exchange reserves.”
Still, Prime minister Abbasi said he expected economic growth would
meet the government’s 6 per cent target for the year ending June.
That confidence stems from Chinese investment in the nation. China
is financing power plants and infrastructure projects valued at more than $50 billion as part of Chinese President Xi Jinping’s “One Belt One Road” initiative. It will help end energy outages before elections that have resulted in long cuts at homes and factories.
A rising middle class is creating demand for goods and services and
has attracted overseas investors, including Vitol SA, Puma Energy and
Royal FrieslandCampina to tap increasing demand for everything from
fuel to milk, the dispatch said. Pakistan’s net borrowing will ease
slightly to 4.3 per cent of gross domestic product in 2017 compared
with India’s 6.4 per cent and Indonesia’s 2.4 per cent, the IMF
estimates.
The removal of former Prime Minister Nawaz Sharif did hurt
business sentiment but projects would continue as planned and growth
target would be met, according to Prime Minister Abbasi.
The government won’t seek another IMF bailout package and was
poised to introduce “radical” tax reform, he said.
Nawaz Sharif had taken a loan from the multilateral lender to
stave off a balance-of-payments crisis in 2013, and the facility was completed in September.
It showed the system was “insulated” from politics, Abbasi said.
“It’s election year. It’s a polarized situation. It’s a very charged atmosphere.”