LAHORE -  The widening current account deficit has created a serious balance of payments crisis for the country which is likely to worsen the financial condition by the end of current fiscal year 2017-18 and force the government to approach the International Monetary Fund (IMF) again for another bailout package, economists have warned.

They rejected the government claim of stable economy, which is contradicted by the fact that the PML-N government has imposed additional regulatory duties on imports to generate around Rs30 billion besides containing the import rise, indicating that the economy does not go well, as the trade deficit continues to widen. Experts said that contrary to its tall claims, the government has no option except contacting with the IMF to obtain fresh loan to resolve fiscal issues, as the federal government has taken loans worth around Rs74 billion during the last two months from different banks, totalling overall loans of $5.4 billion in the current fiscal year so far.

Noted economist Dr Ashfaq Hassan estimated that current account deficit would reach around $16.5 billion at the end of fiscal year 2017-18, requiring another $7.5 billion for debt servicing, forcing the government to renegotiating a bailout package with the IMF. He said that the current government’s poor financial governance will leave Pakistan with no other option than to go to the IMF. He estimated that reserves are drying up and government has failed to fill this financial gap, as Pakistan’s total receivables to reach maximum to $12.5 billion level from different donors including World Bank, IDB, Chinese financing and Foreign Direct Investments.

Experts said that problems in the external sector of the economy continued to compound, as the country’s current account deficit in the first quarter of FY18 soared to $3.8 billion, showing a jump of $2.2 billion. Overall balance of payments that includes financial and capital accounts was also in the red to the tune of $761 million in September, 2017. As a consequence, foreign exchange reserves came down to $13.9 billion in September. This would have severe implications for foreign exchange reserves, value of rupee, investor confidence and inflation.

Financial experts said that the government measures would not have sufficient impact to wipe out the growing deficit and are not a proper substitute to address the structural problems. They said that concerns have already been expressed by the State Bank of Pakistan and multilateral institutions about the deteriorating situation in the external sector but the government, instead of addressing the basic problems, trying to secure further high cost loans from the international market through Eurobond and Sukuk. The real solution of the problem is to increase productivity in the economy and improve competitiveness of Pakistan’s exports in the international market, they added.

Noted economist Dr Shahid Hassan Siddiqi said the increase in external debt during the present government is a matter of concern, as foreign exchange reserves with the State Bank of Pakistan has continued to decrease by $4.5 billion since October 2016. He criticised the government ability to repay foreign loans, as these funds are not being used to increase productivity or growth rather their usage is only to bridge current account deficit.

Economists observed that Pakistan liquid foreign currency reserves has slipped due to widening current account deficit, falling overseas remittances and growing international trade imbalance, leading to yet another IMF bailout package. When there is a new loan agreement, the IMF support will come with another round of belt-tightening measures, targeting low-income households.

Former finance minister Dr Salman Shah said that the government is relying heavily on expensive loans from foreign commercial banks and now repayment has become a big issue for the next government. He said that if commercial loans, borrowed at high interest, would have been used for productive purposes including promoting exports and manufacturing sector, there would have been no issue but these loans were utilised just for balance of payment.

He said that Federal Board of Revenue (FBR) has failed to meet revenue collection targets while on the other hand exports have nosedived. The government must support textile sector, which is a very competitive sector to generate exports. Experts said that instead of addressing structural issues, which would have attracted non-debt inflows, the government preferred to obtain expensive foreign loans for inflating its reserves, which has now proved to be costly.

Since December 1988, there have been 12 IMF programmes in Pakistan in the last 28 years. Only four of them were completed successfully; all the rest were abandoned halfway in the 1990s.