Anjum Ibrahim

Current account deficit (CAD) is again becoming a source of concern to policymakers with many independent economists arguing that unless mitigating policy measures are taken now it may well surpass the 20 billion dollar deficit in 2018 inherited by the Khan administration.

There are three major components of the current account deficit - trade, remittances and financial accounts. Pakistani governments, including the incumbent, have largely focused on reducing a rising trade deficit by incentivizing exports and/or dis-incentivizing imports through a wide range of policies that include monetary measures (cheap and easy credit and/or rupee depreciation) and fiscal incentives (lower taxes and cheaper utilities for export sectors). Needless to add, an unsustainable current account deficit has been the main reason for Pakistan seeking an International Monetary Fund (IMF) programme (currently Pakistan is on its 23rd on average three year programme in its seventy four year history) which facilitates access to cheaper long term external credit from other multilaterals as well as bilaterals.   

Trade deficit in the first quarter of 2021-22 (July-September) registered (-) 11.664 billion dollars and if it continues at this rate it would rise to 46.65 billion dollars by end-June 2022 – 24 percent higher than the 37.5 billion dollars inherited by the Khan administration as shown in the Table (source: Pakistan Bureau of Statistics).