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Rising trade deficit

Rising trade deficit

Pakistan is facing balance of payment problem, trade deficit and shrinking foreign exchange reserves due to various reasons. The trade deficit has reached Rs 293.9 billion due to rising volume of imports and dwindling size of exports during the last three years. Though China has emerged as the largest trading partner of the country in recent years, replacing the United States, the trade deficit has emerged as a new problem for the rising economy. The balance of trade is in favour of China, India, United Arab Emirates, Saudi Arabia, Kuwait and Malaysia, but trade with the United States, Afghanistan, Germany and United Kingdom is in favour of Pakistan. According to the available data, the country has been facing trade deficit since 2003 due to high cost of imported energy, which created balance of payment problem. The World Bank has now approved $450 million loan to resolve the problem and support budget financing along with covering various other sectors. The lending agency has approved three credit facilities to support the government’s strategy of financial inclusion and expand social safety net. The main thrust of obtaining the loan is to support foreign exchange reserves which have started dwindling after the expiry of the three year extended facility programme of the International Monetary Fund.

Out of the $450 million, the country is ready to receive $300 million as the policy credit to keep the foreign currency reserves at or above $17 billion.The donor agencies are also seeking the government to withdraw subsidies on utility bills and reforms its financial sector. The government has approved a new finance policy by presenting companies bill in parliament and has simplified the procedure for the registration of small and medium-scale enterprises. However, the loan will also cover the issues faced by the expanding banking system and ensure transparency in the financial sector. Experts believe the steps such as to curb terrorism financing, money laundering and Benami Transactions will also enhance transparency in the financial sector. As a matter of fact, the foreign assistance has its own limitations. When loans are obtained to pay back the previous loans, it further plunge the country into economic chaos. The first and the foremost priority of the government should be to create industrial surplus. Otherwise, trade deficit will continue to pile up and balance of payment problem will neutralize the gains of the emerging economy.The annual budget for 2017-18 is under preparation and obtaining loans without real industrial growth will only be a jugglery of figures.