Right direction?
This is not the first time that Prime Minister Imran Khan has seen Pakistan’s economy “headed in the right direction finally”. During his 26-month rule so far, the Prime Minister has made such a claim umpteen times before. In a tweet two days back, he quoted figures from the State Bank of Pakistan according to which the country’s current account has witnessed a record surplus of $792 million in the first quarter of the current fiscal year.
That this is the first quarterly surplus in the current account in more than five years must be appreciated. But that it has come on the back of an unusual rise in remittances from abroad and a month-on-month increase in the volume of exports during September does not precisely speak of the “right direction” that the Prime Minister mentioned in his most recent tweet on the state of the national economy.
While the exports figure — a 29% rise month on month and a 6.12% rise year on year — are encouraging also given the Covid restrictions, there is a question mark on the sustainability of the upward trend in foreign remittances which is the main reason for a current account surplus in the first quarter of the ongoing fiscal year. This unusual raise — in fact, abnormal, according to some analysts — in remittance can be explained in various ways, like: the cut in number of international flights due to Covid-19 resulting in lesser number of visits by expats as well as money changers; and the decrease in global commodity prices causing lower imports.
And what’s noticeable is that despite the current account posting a surplus, the external account is not proportionately strong, and the foreign exchange reserves have fallen by around $1 billion over the last three weeks, currently standing at $12 billion, about half of which have been borrowed by the central bank through swaps. So while a gradual recovery is been seen on the economic front, so long as the fundamental issues related to the external account persist, this recovery may not continue beyond a limited period.
Published in The Express Tribune, October 23rd, 2020.
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