Three alarm bells | Farrukh Saleem

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Trade deficit: For the first time ever in Pakistan’s history, our imports are projected to hit $50 billion. For the first time ever in Pakistan’s history, our trade deficit is projected to hit a colossal $30 billion. (Trade deficit is the “amount by which the cost of a country’s imports exceeds the value of its exports”).

The export sector has crashed, foreign exchange remittances are trending downwards and there is no meaningful foreign direct investment. For the record, Pakistan’s current account deficit has widened by an alarming 121 percent during the first eight months of the ongoing fiscal year compared to the same period last year. (Current account deficit is the “measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the goods and services it exports”).

How will we finance a current account deficit that is projected to hit a colossal $8 billion? How will we finance a current account deficit that is projected to hit a shocking four percent of our annual GDP? What will happen to our current account deficit if the oil prices keep on going up?

To be certain, the $30 billion trade deficit is not sustainable and there are three logical consequences: additional debt, devaluation of the rupee and a higher rate of inflation. Unfortunately, our future will have all three: additional debt, devaluation of the rupee and a higher rate of inflation.

Energy sector: The real elephant in this sector is the circular debt. To be sure, loadshedding is a symptom, the real disease is the circular debt. On March 7, 2013, the PML-N came out with a 104-page election manifesto. The manifesto specifically made 42 power-sector related promises. In July 2013, the PML-N government paid off a mammoth Rs480 billion outstanding circular debt promising that the party will not ‘tolerate’ the accumulation of circular debt ever again.

By March 2017, we discovered that circular debt had once again reached Rs414 billion. Pakistan continues to lose $50 billion a year every year because of loadshedding and loadshedding is all because of circular debt. Yes, line losses are marginally down. Yes, recovery is marginally up. Yes, the PML-N government has inaugurated a dozen power plants. But there haven’t been any fundamental power sector reforms at all. We are essentially where we were in 2013.

Budget deficit: The FBR now admits to a revenue collection shortfall of Rs100 billion. But there are two issues: first, the FBR has been holding back refunds to the tune of Rs200 billion and second, there are off-budget deficits that amount to over Rs400 billion. The real budget deficit is projected to hit six percent of the GDP as opposed to the budgeted fiscal deficit limit of 3.8 percent of the GDP.

The budgetary deficit at this level is not sustainable and there are five logical consequences: additional debt, higher taxes, higher debt payments, higher rates of interest and higher rates of inflation. Unfortunately, our future will have all five: additional debt, higher taxes, higher debt payments, higher rates of interest and higher rates of inflation.

The writer is a columnist based in Islamabad.