Broad based reforms imperative for managing external account.

Byline: Ahsan Nisar

Recently, the government has been touting reduction in current account deficit as one of its achievements but in my opinion, the fiscal and monetary policy tools used to manage the external account are operational and temporary in nature. Only structural changes and reforms could bring long term and sustainable solutions. These changes are hard to implement as they require phenomenal political-will and an extremely committed and competent executive team for execution and delivery. But unfortunately there are no shortcuts to these structural reforms anymore and as the time is passing by the need for them is escalating given that other operational tools are almost exhausted.

The critical aspect is that to manage external account, the reforms must be broad-based and cover all the main constituencies, including internal account and taxation. In fact, the circle expands to foreign policy and managing law and order situation in the country, as in this day and age, it is impossible to separate economy from politics. This will not be out of place to say that politics has the most influence on economic factors. Globalization has also resulted in the lack of separation of local economy from international political and economic developments.

The recent economic environment in Pakistan is primarily a result of uncertainties prevailing on the political and the foreign policy fronts. The lack of broader reforms in decades and fragile state of affairs of Public Sector Entities (PSEs) and institutions make the economy exposed to political and economic shocks. Whilst the economic growth has been on the up over the last four years; however, these strengths were not institutionalized, at least not been embedded enough to sustain the moderate political vibration and; thus, inherent weaknesses started to surface.

The single biggest vulnerability in the economy, which the government had to face on the external account front was the growing current account deficit, which is a result of unprecedented increase in imports and almost stagnant exports. In order to manage the imports, the best instrument available is the fiscal policy (duties, cash margins, bans etc.) at this stage, while simultaneously working on the import substitution, a medium to long term solution. On the other hand, the sustainable growth in exportable flows could only be achieved through a medium to long term solution with structural changes (value-addition, non-conventional...