Earlier today, Prime Minister Imran Khan tweeted the bright future ahead for Pakistan’s economy as he specified it was heading in the right direction owing to the drastic fall in our current account deficit.
Pak economy finally heading in right direction as more of our economic reforms bear fruit: Pak's current account turned into surplus in Oct 2019, for first time in 4 yrs. Current account balance was +$99 mn in Oct 2019 compared to -$284 mn in Sept 2019 & -$1,280 mn in Oct 2018
— Imran Khan (@ImranKhanPTI) November 19, 2019
The trade deficit fell by 34 per cent in the first four months of current fiscal year led by a paltry growth in exports and a double digit decline in imports of non-essential products. In the first four months it dipped to $7.77 billion from $11.69bn over the corresponding period last year, reflecting a decline of $4.19bn or 33.52 per cent
The trade deficit has been on the declining trend in the ongoing fiscal year mainly due to government’s corrective measures to slow down imports in order to reduce pressures on foreign exchange reserves and slump in overall demand, data released by the Pakistan Bureau of Statistics (PBS) on Thursday, 14th November.
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A number of measures have been taken in this regard which helped in reducing the import bill and simultaneously formed a stimulus for sustainable economic growth by improving competitiveness and efficiency of the industry especially export oriented and import substituting units and reducing anomalies and cost of doing business.
In the budget 2019-20, the government reduced cost of raw materials and semi-finished products used in exportable products by exempting them from all customs duties. Government also promised to provide sales tax refund to exports sectors.
Macroeconomic policies for adjustment such as monetary tightening, exchange rate adjustments and cuts in development spending started paying dividend.
Government took several initiatives to increased home remittances in FY2018-2019, which contributed heavily to a shrinking deficit. The measures taken include an extension in home remittance services, incentive schemes for financial institutions, rationalisation of M-Wallet Scheme, and the Second Pakistan Remittance Summit.
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Some were quick to associate the increase in exports to currency devaluation which would make them cheaper. However, it is argued exports did not respond to the exchange rate depreciation, as regaining competitiveness after an extended period of an overvalued exchange rate will take time.
Pakistan’s real GDP is expected to decelerate further to 2.4% in FY20 as the government pursues its tightening fiscal and monetary policies but it is expected to recover to 3.0% in FY21 as structural reforms and competitiveness take effect.