Dar seeks options as current account deficit triplesArchive
ISLAMABAD: A high-level meeting on Monday failed to reach a consensus on the exporters’ demand for the continuation of an unconditional cash subsidy on exports in 2017-18 under the premier’s Rs180 billion incentives’ package.
The meeting was called to discuss ways to rectify a deteriorating external sector. Data released on the same day showed the current account deficit for July tripled to $2.05bn year-on-year.
An official source told Dawn that the meeting headed by Finance Minister Ishaq Dar directed the secretaries of three divisions – commerce, textile and finance – to work on the continuation proposal for an unconditional subsidy to support exports.
The meeting was attended by Commerce Minister Pervaiz Malik and other senior officials.
The government allowed the unconditional subsidy in January-June. However, exporters assured the government they would achieve an incremental increase of 10pc in export proceeds during the year.
July data shows spike in ‘healthy imports’ amidst rising exports
According to a source, the commerce and textile divisions have already recommended that the condition be waived off.
The commerce division has also recommended that new potential items, such as horticulture, rice, spices and agri-processed foods, be included in the package.
Finance Secretary Shahid Mahmood briefed meeting participants on external accounts. He explained that the recent increase in the current account deficit was largely driven by a sharp jump in imports of machinery for power generation, textile, construction and petroleum products.
Data released by the State Bank of Pakistan shows imports of goods and services in July were $5.59bn, up 47pc from $3.8bn a year ago. The trade deficit came in at $3.37bn for July, up 71.7pc on an annual basis.
Month-on-month, the current account deficit increased 41pc from $1.45bn recorded in the preceding month.
The finance secretary told the meeting participants that these were healthy imports, which would increase the production capacity of the economy and enable higher growth and exports.
He also attributed the decline in exports in the last few years to global economic conditions, energy shortages for industrial and agriculture sectors and reduced availability of exportable surplus.
He was of the opinion that an improvement in the global economic outlook, uninterrupted supply of electricity and gas to the industrial sector and increased output meant the export decline had begun to bottom out. Exports in January-June registered a growth of 0.52pc over the same period last year.
He highlighted that exports in July posted a healthy growth of 10.5pc. He said workers’ remittances, which remained stagnant due to global conditions, have shown an impressive growth of 16pc in July.
Mr Dar said a significantly higher export target should be achieved to improve the trade deficit. He said the incentives’ package announced earlier this year was fully endorsed by the industry.
Proposals to incentivise remittances were also discussed in detail. The proposals included a remittance scorecard, road shows in major corridors, transaction efficiency and settlement of TT charges.
Mr Dar emphasised that remittances were an important foreign exchange stream for the country. He said the proposed initiatives should be finalised immediately. He also highlighted the need for encouraging overseas Pakistanis to invest in the country.
The meeting was also briefed on various measures to finance the current account deficit in the short term. It was explained that increased inflows of foreign direct investment and other investments under the China-Pakistan Economic Corridor would largely fill this gap. Other options, such as tapping capital markets and trade finance facilities, were also discussed.
Mr Dar said the economy was passing through an expansionary phase. Dividends for the country would be much higher than the cost presently being borne in the form of a widening trade deficit, which is only a short-term phenomenon.
Published in Dawn, August 22nd, 2017