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Wednesday, June 27, 2018

Govt responds to concerns about growing external deficit


Govt responds to concerns about growing external deficitKARACHI: The Min­istry of Finance responded on Monday to mounting concerns about the growing current account deficit, which has run down the country’s foreign exchange reserves to two months of import cover.

In a press release, the ministry acknowledged the growing trade deficit, which “jumped from $43.6 billion to $50.8bn during July-May 2018 as compared to same period last year.
“Such increase in imports is mainly driven by higher imports of machinery, industrial raw material and fuels to meet requirements of the rapidly expanding economy.”
The ministry sought to assuage public concern on the same day that PTI chief, Imran Khan, launched his party’s campaign by denouncing the PML (N) government for having “bankrupted the country”.
“The government has adequate financing in the pipeline to finance [the] current account deficit, as a result it is expected that foreign exchange reserves will stabilise above 2 months of imports,” the finance ministry said in a press release, without elaborating on the source of this financing.
It said the “spike in the current account deficit is a short term phenomenon and is most likely to peak in 2018” as most CPEC-related projects and their attendant capital investment are nearing completion.
The ministry pointed to downward adjustments in interest rates and the exchange rate as steps taken in cognizance of the growing difficulties on the external front.

“Due to a lag in adjustment, it is expected that the effect of depreciation will be visible in data for July-August 2018. Remittances, in the meanwhile, have shown improvement during Jul-May 2018 due to better global growth prospects.”
In addition it pointed to the policy rate set by the State Bank, which has been adjusted from 5.75 percent to 6.25 percent “to arrest growth in domestic consumption.”
The release also said “further measures” are under study, again without elaborating. It pointed to the rebound in exports, and said more increases will come with the next round of depreciation effected earlier this month.
“Adjustment of the rupee against the dollar is also likely to stabilise imports and domestic consumption of imported goods while strengthening the export growth momentum.”

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