ISLAMABAD: The Finance Ministry is optimistic about strengthening current account deficit and increasing foreign exchange reserves in result of positive indicators, due to home grown economic structural reforms program.
The Current account deficit widened to $ 12.4 billion previous fiscal year as compared to $4.9 billion in FY16-17. Similarly, total liquid foreign exchange reserves witnessed a reduction of $3.3 billion from the peak level of $24 billion at end October 2016 to $20.7 billion in December, 2017.
A well placed source at Finance Ministry, told Customs Today that the government initiated a home grown structural reforms program broadly covering energy, fiscal reforms, social protection, and improvement in business climate.
“These reforms have significantly improved macroeconomic indicators including build-up of foreign exchange reserves which were supplemented by inflows of loans and grants from multilateral and bilateral development partners, overwhelming response of investors in Euro and Sukuk Bonds’ issuance, inflow of money, measures taken under Pakistan Remittance Initiative (PRI) and SBP’s efforts to build up foreign exchange reserves” the source observed saying that these steps helped in maintaining the upward trajectory of foreign exchange reserves.
The source said that main contributor to current account deficit is trade deficit which needs to be understood in its true context. It is mainly due to increase in imports of machinery, industrial raw material and petroleum products.
“This sharp increase is due to increased investments under CPEC in energy and infrastructure sectors. These are healthy imports and will enhance productive capacity of the economy for higher outputs and exports in future” the source maintained.
As imports increased, exports faced a stagnant trend due to the subdued demand, the source said hat depressed commodity prices globally coupled with the energy shortages and law and order situation in the country adversely affected the exports.
“There was also stagnancy in remittances due to, tight budgetary conditions in GCC countries as a result of low oil prices, strict regulatory requirements in USA and depreciation of pound sterling against US dollar” the source added.
However, the source said that the negative trend in exports had bottomed out and exports have increased by 11.2% and workers’ remittances by 2.3% during July-October, 2017 as against corresponding period of last year.
Similarly, the source said that foreign direct investment (FDI) during July-October, 2017-18 stood at $940 million as compared to $538 million in the corresponding period of last year showing an impressive growth of 74%.
“With these positive trends strengthening, in coming months the current account deficit may substantially improve and the foreign exchange reserves of the country will continue to be at a healthy level in FY18” the source added.
