In his Independence Day address, State Bank Governor Dr Reza Baqir said Pakistan’s economy is heading in the right direction. But his statement is at odds with what we’re seeing in the economy right now: unemployment and rising inflation.
SAMAA TV business reporter Ashraf Khan explained that the SBP governor isn’t wrong. Our current account deficit has dropped below $14 billion, he said. Last year it was $20 billion. A current account deficit means we import more than we export.
Pakistan has recently implemented measures to make imports more expensive, so that people start consuming locally-produced products. When people use products made in Pakistan it helps local industries and reduces our imports. The reason we want to reduce our imports is because we pay for them in dollars. That wouldn’t be an issue if we had enough dollars but because we don’t export enough, we don’t have enough dollars to pay for expensive imports.
The lower current account deficit means the government’s policy of encouraging fewer imports and increasing exports is working. In fact, our imports have reduced from $61 billion to $55 billion, which means we saved $6 billion this year.
These new policies are the result of a programme Pakistan signed with the IMF. As part of the three-year deal, the IMF will give us $6 billion but we need to make some serious changes. One of the biggest changes was to stop controlling our exchange rate. Another was to raise taxes on things like electricity and gas.
After a tumultuous year, the dollar finally began to settle in July after the IMF released its first tranche of $1 billion.
Another major effect of the government’s new policies is that fewer refurbished or used cars are being imported. Between 60,000 to 70,000 cars were being illegally imported every year at a cost of $1.5 billion. It also affected the local automobile industry. Now, more automobile manufacturers have set up shop in Pakistan and will be assembling cars here.
The trade loss has also decreased from $38 billion to $31 billion and more people are filing their taxes. In his speech, Baqir acknowledged rising unemployment and inflation and said it will take another two years to get the economy on the right track.