Cabinet pores over economic fallout of Trump’s threat

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Cabinet pores over economic fallout of Trump’s threat
Cabinet pores over economic fallout of Trump’s threat

ISLAMABAD: US President Donald Trump once referred to himself as the king of debt. But whether or not he really is the king, his recent policy speech on Afghanistan has Pakistan’s finance ministry worried about the country’s debts.

The change in the US’s posture towards Pakistan may further complicate the external sector situation, the finance ministry cautioned the federal cabinet on Tuesday, as the government is already reeling under a worsening fiscal burden due to a 1.85trillion-rupee budget deficit.

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Finance ministry officials on Tuesday sensitised the federal cabinet on the evolving geopolitical situation and its economic implications. It gave a presentation on the PML-N government’s economic performance since 2013 and emerging economic challenges.

The new US policy may further complicate the balance of payments situation, said the finance ministry officials. Pakistan booked a record current account deficit of $12.1 billion in the fiscal year 2016-17, which ended on June 30, the cabinet was informed.

Trump has called on Islamabad to “demonstrate its commitment to civilisation, order, and peace” and said the US could no longer stay silent about Pakistan’s ‘safe havens for terrorists’.

However, a minister pointed out that the external sector started deteriorating far before Trump’s speech, officials told The Express Tribune.

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The federal ministers also asked the finance ministry whether Pakistan would need another International Monetary Fund (IMF) loan to manage the balance of payments situation, said sources, while adding that no firm answer was forthcoming.

Sources said the finance ministry informed the cabinet that the change in US policy may also carry implications on Pakistan’s relations with multilateral lenders such as the IMF and World Bank. There may also be implications for Pakistan’s financial markets and the currency market.

Another implication of the changing US posture could be a slowdown in remittances and export orders from the United States.

The Pakistan Stock Exchange’s KSE 100-Index significantly shed value during the past two days after the United States announced it would impose penalties on HBL.

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Historically, direct and indirect support from the US has helped Islamabad manage its external accounts and the budget. Reimbursements from the Coalition Support Fund ranged between $500 million and $1.5 billion per annum during the past 16 years and also worked as a bridge for the current account deficit.

The finance ministry sensitised the federal cabinet about the adverse implications of the change in US policy at a time when it is already facing twin deficits in the current account and the budget.

It also told the cabinet that during the last fiscal year, the budget deficit was 5.8% of GDP, or Rs1.85 trillion.

“The fiscal deficit has been reduced to 5.8% of GDP,” according to a handout issued by the Prime Minister’s Office. But it was still 2% of GDP, or Rs636 billion higher than the 3.8% target approved by parliament. The ministry missed the target by over 52%.

The finance ministry blamed reduced tax revenues and excess spending by the provinces for the record Rs1.85 trillion budget deficit.

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The Rs1.85 trillion budget deficit was the highest in the country’s history, as the earlier record was of Rs1.833 trillion deficit that had been booked in 2012-13, which was the last year of the PPP government. In terms of the GDP, the Rs1.833 trillion deficit was equal to 8% of the GDP. In 2012-13, the size of the economy was relatively small.

However, the Rs1.833 trillion budget deficit of the PPP tenure was inclusive of Rs480 billion circular debt payments while the PML-N’s fourth-year budget deficit was exclusive of circular debt. Finance Minister has time and again flatly refused to book the circular debt of over Rs400 billion into the budget, although he did it after coming into power in 2013 to show bad fiscal performance during the last year of the PPP government.

The Rs1.85n trillion budget deficit indicates that the PML-N badly failed in mobilising resources despite making tall claims.

Sources said that Prime Minister Shahid Khaqan Abbasi urged his cabinet colleagues to suggest ways to enhance exports, which he regards as a workable option to tackle the deteriorating position of the external sector. Some cabinet members also opined that taking on more loans to bridge deficits should no longer be on the table.

The cabinet was also informed that economic growth rate increased to 5.3%, large-scale manufacturing achieved 5.6% growth, and per capita income increased from $1,334 in the fiscal year 2012-13 to $1,629 in the previous year.

However, the $1,629 per capita figure is outdated, as it had been worked out on an estimated population of 197.3 million. The latest population census figure of 207.8 million suggests that the per capita income is closer to $1,566.

 

The post Cabinet pores over economic fallout of Trump’s threat appeared first on The Express Tribune.

Originally Posted on Tribune

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