Economic indicators worsen

A sign of things to come?

Although the PTI government has been mostly successful in steering the economy to relative safety through covid-19, the underlying problems that existed even before the pandemic continue to stand in the way of any recovery that is to be made. The construction industry incentives that were introduced to increase economic activity and were renewed for this year as well are part of a strategy to mitigate the worst effects of the coronavirus on the economy. However, the latest macroeconomic indicators spell trouble for an economy that is still quite far from bouncing back. Foreign direct investment (FDI) fell by a whopping 27 percent in the past seven months as compared to the same period of the last fiscal year.

What is more worrying is the fact that this drop is mainly due to a decline of $100 million in FDI coming in from China, which points towards a slowdown in CPEC projects, something that has been denied by the government but is reflected in the numbers. Pakistan finds itself between a rock and a hard place. On one end there is the IMF, that has forced the government to raise energy prices and taxes in order to restart the stalled $6 billion extended fund facility (EFF), and which is skeptical about CPEC. On the other end there is China that has already bet billions on CPEC’s success. The federal government is therefore walking a tightrope and must be careful not to annoy either side as both have become integral to the stability and progress of the country’s economy.

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Simultaneously, the improving current account situation that had seen a surplus for a record five successive months, posted its second consecutive deficit in January amounting to $229 million. The PTI government had inherited a $20 billion current account deficit when it came to power in 2018 and over the course of two and a half years brought it to zero by curtailing imports. With sluggish exports and a rising import bill, the deficit is likely to remain in a narrow range but it is highly unlikely to be converted again into a surplus anytime soon. Unless the government rethinks its export policy that currently revolves around giving outright support to the industry in the form of tax breaks and subsidies, the trade deficit will not get any help from the inflow side. The time to do things the old way has passed.

The Editorial Department of Pakistan Today can be contacted at: [email protected].

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