HELPED by a tepid domestic demand and significant growth in home remittances, the country’s current account deficit shrunk by 92pc to just $98m during the first quarter of the current fiscal year. In comparison, last year’s deficit for the same period was $1.24bn. That it is shrinking despite a worsening trade deficit, which soared by nearly 20pc to over $1.2bn on higher petroleum, transport and machinery imports, shows that a 39pc boost in remittances to $8.78bn came to the aid of the external account. The current account ran a surplus of $148m in August-September.

That said, reduced economic uncertainty on the back of IMF-mandated stabilisation, a steady exchange rate, and a decline in inflation and borrowing costs are expected to lead to a relatively faster increase in imports, going forward. That will likely worsen the current account deficit unless remittances keep rising to offset the increasing import bill. The government has been projecting the reduction in the current account deficit as one of its major successes. It is indeed the case because it has played a significant role in currency stability and a reduction in the consequent economic volatility. But it is not something to celebrate. The shrinking deficit is a mere reflection of the compromise on economic growth through import curbs and other controls over forex outflows at the cost of investor confidence. More importantly, it underlines the inherent structural issues plaguing the economy that lead the country from one balance-of-payments crisis to the next, whenever we try to grow at a faster rate. Resultantly, we have seen industry cut production, jobs lost, poverty increase and the government slash its expenditures on public services and socioeconomic development amid an exacerbating debt crisis in recent years. It is time the authorities took advantage of the recent stability to implement structural and policy reforms to improve the business environment and woo investment to move on to a faster growth trajectory.

Published in Dawn, October 23th, 2024