According to Bloomberg, Pakistan’s foreign exchange reserves are depleting at the fastest pace and may have reached the size of Cambodia’s, which has an economy that is less than a 10th of its size. The reserves reached $13.5 billion in February, after losing a fifth of its volume last year while Cambodia’s reserves increased to $11.2 billion in January. The reserves in Pakistan are likely to drop by $2.2 billion in next three months. The current-account deficit has already increased by 50 percent to $10.8 billion in eight months due to rising imports of equipment and machinery by Chinese investors for new power plants. Some experts take the deficit as outcome of economic growth which is projected at 5 percent during the current fiscal year. However, the government authorities, instead of giving tax relief for local and foreign investors, opted for devaluating the Pakistani rupee twice during the last four months. This will have disastrous effects on the overall performance of the economy. It is difficult to understand from where the financial managers of this country have learnt the rules of business. Earlier, the former finance minister ballooned the foreign exchange reserves to $23 billion on the bases of foreign borrowings at high markup rates.
Experts believe the country will further suffer the balance of payments crunch as exports are not picking up and inflows of hot capital are not coming in. The countries with half of the size of the Pakistan’s economy are growing at the fasts rates due to better planning and consistent policies. Cambodia, Vietnam and Bangladesh are a few emerging giants on the canvas of the Asian regions. Pakistan is losing grounds in every field of the economy and the policymakers will have to work overtime before disappointment engulfs the entire nation. According to Bloomberg, its data shows the smaller economies of Asia Pacific countries, including New Zealand and Kazakhstan have more reserves than Pakistan. The size of foreign currency reserves depends on the industrial, agriculture and business sectors, but all the three are reeling under self-made troubles. The government finds the solutions in foreign borrowings or selling global bonds, which give short term relief and long term problems. The government is now launching a tax amnesty scheme, but this is not a panacea to chronic financial ailments. The solution only lies in business, trade and investment. Unless business climate is improved, it is difficult to attract foreign direct investment and the country would continue to feel the heat of depleting foreign exchange reserves.
