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Managing current account deficit

Managing current account deficit

In a bid to control widening trade and current account deficits, the government has decided to give tax break to the exporters not only to arrest the falling exports, but also increase the export volume by 10 percent by exploring new markets this year. Pakistan exported over $25 billion worth of goods and services abroad during the Pakistan People’s Party tenure when the economy was generally considered to be at its lowest ebb. But ironically, export volume further slashed with every other year during the four year tenure of the Pakistan Muslim League-Nawaz when the economy was burgeoning and all the economic variables were in favour of the government. A tax break is generally considered savings on taxpayers’ liabilities and provides savings through various incentives such as tax deductions, tax credits and tax exemptions. Earlier, the former prime minister had announced an export package of Rs 180 billion to boost the exports. In the meantime, the government also restricted imports and imposed regulatory duty on more than 700 luxury goods to slash the import volume. Economists believe the import volume has increased due to import of plants and machinery from China to be used in the China Pakistan Economic Corridor.

However, it is assumed that the tax break will make the Pakistani goods more competitive in the international market. The rising import bill has increased trade and current account deficits, which has increased the pressure on the foreign exchange reserves. The latest data reveals that the textile exports have increased to 11 percent during the first quarter of the current fiscal year. The cement, steel, electronics and automobile industries are also showing signs of recovery after the central bank have kept the interest rates at the lowest in more than four decades. On another note, the fertilizer and sugar sectors are also producing surplus which will be available for export this year.

Reports suggest China has expressed its willingness to accommodate at least 70 Pakistani products. The government is also considering revising its free trade agreements with some countries which were signed in haste without keeping in mind the interests of the local business community. It is hoped that the Chinese investment in special economic zones will reduce the trade gap between the two countries. The current account deficit is a major cause of concern for the government but it is hoped it will manage it without taking any loan from a foreign financial agency.