Daily Times

What better news for the government to wake up to than a 64 percent reduction in the current account deficit, year-on-year, in the first quarter of the current fiscal year? Certainly, a 21 percent drop in the import bill, largely for luxury goods, is no mean feat. It just goes to show that a little bit of political will was all that was needed to check our elite’s large appetite for foreign luxury. Perhaps there was more than a grain of truth in the allegation that for a long time people who ran the government, and hence controlled the levers of the economy, were themselves the largest consumers of this one-way luxury trade. And since the present government has not just tied them in legal knots, but also made it difficult to move illegitimate money that allegedly financed this extravagant commerce, it is little surprise that squeezing the deficit was indeed possible. Still, full marks to the Imran Khan government for taking this particular bull by the horns.

Yet import is just one part of trade. And as appreciated as the control on largely needless inflows is, it must also be noted with concern that exports of goods and services, in the same time period, grew only 1.38 percent. And it’s not like the government did not try to stimulate trade revenue. The rupee was all but beaten through the floor, trade missions (often led by the prime minister himself) sent repeatedly to friendly countries, loans from left, right and centre put into infrastructure and manufacturing, yet there’s very little movement in the right direction. Arresting the deficit by cutting imports will save you more foreign exchange, which once again is praise-worthy, but alone it won’t quite get the job done, especially if taxes and tariffs also reduce, however inadvertently, import of input parts necessary for certain export outlets. And if exports won’t pick up, the annual current account deficit will not be met; as is already apparent despite the record rise in remittances.

There’s more, unfortunately. As the government wriggles to get a handle on the external sector, there’s still the worry about lack of triggers for economic activity and growth internally. With very tight and contractionary fiscal and monetary policies in place, not to mention double-digit (and still rising) inflation, it would take a small miracle to get any sort of investment going here. Initially the state bank governor thought the high interest rate would bring inflation down, so ultimately it could be reduced and investment encouraged. He did not agree with concerned analysis that inflation, presently, was cost-push not demand-pull, and the high rates are not bringing down any over-heating aggregate demand. Now that prices have not responded to the high rate, quite predictably, it remains to be seen what relevant authorities are going to do about it. Meanwhile, god job about the imports, but if something equally encouraging doesn’t happen to exports, everybody is in for a hard time, especially the government. *