Adeem Niaz

Pakistan needs to pay attention to its declining foreign exchange reserves, which dropped to $7.8 billion in the first quarter of the current fiscal year (FY22-23), said Mr. Shafqatullah, PhD Scholar at the National University of Modern Languages, while talking to WealthPK.

He said current account, remittances, and foreign direct investment (FDI) are the three main instruments of economy responsible for the increasing and decreasing trend of the foreign exchange reserves. ‘’Although the current account deficit (CAD) has recently decreased, we still have a large figure facing us. To overcome the CAD, we have to spend our foreign exchange reserves, which results in their decrease,” he said.

He said the inflow of remittances was also an injection into the foreign exchange reserves of Pakistan, but in the recent few months, a decline had been seen in the remittances, as the expatriates were using unauthorized channels to send remittances home. This use of unauthorized way of transactions is pressurizing the foreign reserves, he added. Shafqatullah said the FDI – the third main instrument that determines the trend of foreign exchange reserves – was also declining because investors were not able to achieve the up-to-the mark profit due to high inflation and higher energy costs.

The FDI fell to $348 million during the first four months of FY2023 compared with $726 million in the corresponding period of FY2022, according to the data released by the SBP. ‘’Our reserves can only cover imports for one month, so right now the Government of Pakistan needs to take some steps to increase its reserves,’’ Shafqat said. He suggested that on an immediate basis, the government should implement the work-from-home policy which will help cut consumption of fuel and electricity, as the offices will remain closed.

He said educational institutions could work four days a week. He urged the government to work on long-term policies in order to tackle the economic issues, as the reserves were depleting day by day. The government, he said, must change its importing behavior, as it had to import a majority of items. Instead of importing, Pakistan has to be a producing country so that it can enhance its exports.

The government has to control its expenditures, as the fiscal deficit has jumped by 84.4% to Rs809 billion in the first quarter of FY2023 against Rs438 billion in the same period of FY2022, Shafqat emphasized. He further suggested that the government should cut the spending of different departments after evaluating their performance. This will surely reduce the government expenditures. “The government needs to focus on the economic growth.

If the economy grows, the government will increase tax revenue without raising taxes. With economic growth, people pay more value-added tax (VAT), companies pay more corporation tax (tax on profits), and workers’ pay more income tax,’’ he added. Shafqat said at the moment, the government needed an IMF package and loans from friendly countries but it should endeavour to reduce its loan dependency policy in the long run.

Credit : Independent News Pakistan-WealthPk