Warning signs for the economy

The country is not due to receive any hefty amount of foreign exchange in the near future


Editorial August 11, 2016
The country is not due to receive any hefty amount of foreign exchange in the near future. PHOTO: AFP

The country’s finance managers have traditionally looked towards remittances to be the salvaging grace in times of falling exports, shrugging off any concerns over balance of payments. But what if both avenues of foreign exchange start recording a hefty drop at the same time? With the IMF’s Extended Fund Facility having ended, the country is not due to receive any hefty amount of foreign exchange in the near future, pointing towards increased pressure on its current reserves. In the latest development, Pakistan’s exports recorded yet another decrease in July, plunging seven per cent year-on-year, while imports continued to grow. At the same time, overseas Pakistanis sent remittances amounting to $1.3 billion in July, a sharp 20 per cent decline with amounts coming from the UK, the US, and Saudi Arabia recording a hefty fall.



A State Bank of Pakistan official felt the drop was due to remittances being sent home ahead of Eid, which fell at the start of July, and fewer working days during the month. He downplayed concerns over Brexit and workers losing jobs in Saudi Arabia. At one level, these arguments do make sense. But it should be noted that the overall growth in remittances registered a slowdown in fiscal 2016, and there is no denying that there is added pressure since falling oil prices have held back spending from various governments. Job losses aside, pressure on remittances from workers and a downturn in the world economy, which has led global financial institutions to revise growth figures, will add pressure on Pakistan’s favourite foreign exchange revenue source. When such news is coupled with already-falling exports, the future looks slightly hazy — even if you have over $22 billion in your account. The oil supply glut will not persist forever and prices may recover to an extent. When they do, the import bill will increase straightaway. However, remittances may take longer to grow. Incentives for exporters, announced in the federal budget, are also unlikely to result in the increase Pakistan was hoping for. Structural concerns as well as competitiveness issues are likely to remain impediments for the economy going forward. These need to be tackled now.

Published in The Express Tribune, August 12th, 2016.

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COMMENTS (2)

Toti calling | 5 years ago | Reply I agree Pakistan cannot afford to depend on remittances from abroad and concentrate more on exporting goods and not people who suffer a lot and do jobs which are below their qualifications. Jobs they will never do in Pakistan but do not reveal such things back home. With oil prices decreasing and the economic conditions of oil producing countries getting bad, many will be sent home.Also there has to be a co-relationship with exports and imports. Only those companies and persons should be allowed to import goods who show that they earned the money thru exports. Luxury items and things that do not help the economy must be reduced considerably.
Shuaib | 5 years ago | Reply The issue with journalists is that they make terrible economists. The doomsday scenario is painted and the public eats it up. Rationale and objectivity go down the drain.
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