Current account surplus
The current account situation appears to be stabilising somewhat, with two consecutive months of surpluses being reported. The figures for March show a nominal $18 million surplus after a windfall $750 million surplus in March. The March figure, the first surplus in over two years, was revised up by almost $100 million, as the government’s belt-tightening to avoid default continues. Successive surpluses have shrunk the deficit for FY23 to date to just $3.26 billion, compared to a whopping $17.5 billion for the whole of FY22. Analysts say the surpluses should continue through the end of the fiscal year and bring the annual deficit below $3 billion and put us on course for balancing the current account next year as well.
But while it is worth noting that Pakistan could avoid default if we keep running surpluses or at least balance the current account, the cost to the local economy of a prolonged austerity policy would be disastrous. Local industry is contracting as it struggles to import raw materials, and multinational commercial and industrial entities are struggling to remit their profits. Prolonged austerity could force some critical businesses to close shop, creating new stresses as the loss in production would have to be met by imports. Economic growth projections have already collapsed, with 0.5% growth being among the more optimistic estimates.
Thus, the focus on austerity must be balanced against the need to stabilise the exchange rate and slash the interest rate so it becomes easier to create domestic investment, which has dwindled in recent months. Of course, this would become easier if the IMF programme is unlocked: amid contradicting statements on financing from friendly countries, we have now heard that the IMF is also not pleased by the new fuel price cuts, which may be seen as subsidies. Resolution of the IMF dispute, and indeed the extent of austerity, will likely remain unclear till the next budget, which is still a painful month away.
Published in The Express Tribune, May 19th, 2023.
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