PTI’s economic deja vu.

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The government must understand that the imbalance in external accounts cannot be permanently financed by foreign remittances.

The Pakistan Tehreek-e-Insaf (PTI) government decided over a two-year period that the task of stabilizing the boat, which was given to it after it took over the reins in 2018, was now complete. Now it’s time to dump her and move on. A new economic setup was installed, an expansion budget was drawn up, and growth was promised. The ruling party was now gearing up for its next election campaign, and the price seems affordable if some sacrifices have to be made on the economic front.

However, these desires have come to a terrible halt. The economic landscape has turned so fast that even the most optimistic experts have backed away from recommending caution. Two months into FY22, the Current Account Deficit (CAD) has already increased its annual toll by more than 25% in FY21. Less than six months after becoming the world’s best-performing currency, the PKR is now the continent’s worst-performing currency, breaking its all-time low in September. Pakistan’s economic team, despite its assurances, is now at gunpoint to prevent an external account imbalance. A challenging enterprise, especially in the context of its politically significant development.

What was going to happen again and again during its three-year tenure, the PTI government has misjudged the basic details of the plot. And not unlike its predecessors, and despite claims of structural reform, the government has largely ignored fault lines in the foreign trade model. It seems to have forgotten its mantra of prioritizing a sustainable external account position over volatile consumption. Stressing on development without resolving the fundamental imbalance in the country’s trade balance, the PTI has approved a return to the scourge of external accounting but promised to save Pakistan.

A major problem in Pakistan’s trade environment is its heavy reliance on energy imports. This dependence not only puts the country at high risk of major economic shocks as a result of changes in the dynamics of the international energy market, but also leads to a distorted baseline for growth. Rising inflation is almost always necessary to increase the pressure of rising inflation, without capital imports. In the first two months of FY22, imports of petroleum products increased by more than 86% while imports of machinery increased by less than 20%.

International oil prices have risen sharply since the advent of the Cove 19, with healthy growth in labor remittances, whichever room may be available. Petroleum imports make up the largest import group, accounting for one-fifth of the import bill. And even in petroleum imports, more than 50% of imports come in the form of better products, which has led to a sharp rise in oil prices. Sustainable economic growth cannot be achieved without changing the coefficients in this equation, then, there seems to be a precedent.

However, economic policymaking in Pakistan has ignored any consideration that is dynamic to address this imbalance, instead opting for consumption-based growth. In the first two months of FY22, car imports increased by more than 165%. Of course, this should come as no surprise. Restructuring the energy mix and restructuring petroleum imports requires a long-term commitment that does not necessarily have to be an immediate political currency for visitors.

If the country’s policy makers intend to create a growth equation that is not only sustainable but does not inadvertently create an external account imbalance, however, they need to make comprehensive reforms that include restructuring energy infrastructure. included. The country should prioritize moving away from non-renewable energy sources that require an unstable import burden. It should also ensure that, perhaps through public-private partnerships, petroleum imports are not necessarily directed towards value-added refined products.

The government needs to understand that the imbalance in external accounts cannot be permanently financed by external remittances, grants and loans. Pakistan needs to move towards a trade balance. And while export-oriented policies are necessary to improve equity, structural disparities towards imports should not be overlooked. Policymakers need to understand that while exports can be boosted through favorable regulatory interventions, the country’s economic growth potential must not be unnecessarily exposed to external shocks.





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