Daily Times

The finance minister hasn’t panicked just yet, at least not for public consumption, but he’s clearly been worried enough about the expanding trade deficit to give the commerce ministry a good dressing down. The year-on-year trade deficit for August 2021 grew by 122 percent to reach $6.5 billion, the highest one-month figure on record. That’s left the government, more specifically the commerce ministry, with some egg on its face because it’s calculations, made just two weeks prior to the announcement by the Federal Bureau of Statistics (FBS), estimated the deficit to settle at $5.5 billion, which means its calculation was wrong by a good $1 billion, or roughly 18 percent.

Just as expected, the commerce ministry tried to lay the blame on “expansion in economic activity, import of one-time items like vaccines for Covid19, as well as increased demand for raw materials.” But it couldn’t quite hoodwink Finance Minister Tarin, who had done his homework and reminded everybody that the additional burden of one-time items was no more than $200 million, so there was really no way to justify the difference between expectation and reality. It was also wrong of commerce ministry officials to attribute the unexpected import of cars and mobile phones to “increase in economic activity,” which the finance minister flatly rejected because, even if this excuse was true, it wouldn’t explain just why our import substitution policies are failing.

It was good of Finance Minister Tarin to sound the alarm right at the outset. It is he, after all, that must negotiate the Extended Fund Facility (EFF) with the IMF in a few days. And if we’re unable to control our trade deficit, which will provide fillip to the current account deficit, then there’s no way that the present year’s experimental budget can continue while also keeping the IMF bailout program going. It is sincerely hoped that the commerce ministry will pull its socks up and give the government less to worry about as negotiations with the Fund draw near.

There’s a lesson here for most senior members of government. Just the other day SBP Governor Reza Baqir implied that we should be happy with the widening deficit because it implied higher growth. Hopefully the dose from the finance minister, which was directed towards the commerce ministry but was meant more or less for all monetary and fiscal authorities, would have put things in perspective for him as well. After all, if we can’t expect some straight talk from the commerce ministry and the state bank, then producers, exporters as well as importers can come to great harm for no fault of their own. *