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Looming economic challenges

Looming economic challenges

 

According to a report appearing in Bloomberg, the government was struggling to repair the economic damages caused by disqualification of prime minister Nawaz Sharif when US President Donald Trump’s comments came as bolt from the blue, accusing Pakistan of harboring groups which are allegedly involved in terrorist activities in Afghanistan. The current account deficit tripled the size in the final quarter of the last financial year ended in June, amid fears of looming economic slump across the country. The foreign exchange reserves have declined by a quarter for the last ten months. As political turmoil is intensifying with every passing day, the general elections are less than one year apart and so-called financial stability achieved by the country during Nawaz government has begun to fade. Economists fear the country would have to negotiate for another loan program with International Monetary Fund. The potential investors are spooked by the political and economic deterioration and the index of the Pakistan Stock Exchange has entered the bear zone. The government is struggling to maintain the value of rupee at certain level despite pressures from the local businessmen and foreign donor agencies. Earlier, depreciation of rupee by 3.1 percent prompted Finance Minister Ishaq Dar to replace the State Bank governor. The country is not able to abandon its control over the value of the rupee and let it fall to the lowest ebb.

According to foreign and local financial experts, the macroeconomic vulnerabilities have started building up again due to some domestic factors. The sole pressure on the government is lose its grip on the exchange-rate stability. According to them, the exchange-rate management has been politicized which contributed in enhancement of trade deficit and weakened the macroeconomic outlook. Prime Minister Shahid Khaqan Abbasi has also ruled out any chance by his government to devalue currency and stressed the need for increasing exports and decreasing imports to fix the widening trade deficit. Reports suggest Pakistan’s currency has been efficiently maintained at stable level in Asia since 2014 against the dollar.

The economists expect the country would achieve economic growth target of 6 percent for the year ending June next year. According to a foreign lending agency, the nation’s annual current account deficit may reach 5 percent of the economy and the gap is more than the double compared with 1.5 percent in India and 1.9 percent in Indonesia.