KARACHI: Five months before the general elections PML-N’s government isstruggling to fix the failing economy.
The finance managers attempted to bring discipline by currency devaluationin December and by raising taxes in October to curb rising imports. Despitethese moves both current account and trade deficits are hitting recordswhile foreign exchange reserves continue to fall, reports Bloomberg.
Pakistan’s external sector indicators “signal a crisis and are going frombad to worse,” Uzair Younus, a South Asia director at Washington-basedconsultancy Albright Stonebridge Group LLC told Bloomberg.
“With elections around the corner, the government will simply kick the candown the road. The next government will face a balance of payments crisisand most likely go to the International Monetary Fund for yet anotherbailout,” he said.
The nation’s imports rose to a record last month despite the governmentincreasing taxes on more than 700 items in October. With the tax on almosthalf those products reversed this month, the import bill remains underpressure.
Bloomberg reported that the economy is growing at 5.3 percent — thefastest pace in a decade — with import demand fueled by China’s financingof power plants and road projects under the China-Pakistan EconomicCorridor (CPEC).
The current account deficit has continued to widen after a currencydevaluation in December, putting further pressure on the rupee and pushingauthorities to borrow more. The current account gap reached 4.7 percent ofgross domestic product in the seven months ending January, compared with3.5 percent a year earlier.
Pakistan’s foreign exchange reserves have continued to decline after thelast IMF loan program ended in September 2016. But now, according to thereport, economists are predicting that Islamabad will need a bailoutpackage later this year to shore up its finances.
The State Bank of Pakistan (SBP) unexpectedly increased its interest ratefor the first time in more than four years last month. The SBP chief TariqBajwa said the regulator is “pre-empting signs of the economy overheatingand trying to keep inflation under control.”
Pakistan’s financial risk in January rose the most since Bloomberg startedcompiling data in 2015. Pakistan’s benchmark stock index has dropped 18percent since a peak in May last year with foreigners selling shares afterthe country was upgraded to emerging market status by MSCI Inc.
Political turmoil following the ousting of former Prime Minister NawazSharif in July spurred further drops, it said.