Temporary calm has returned to the political arena after the new PM took oath and revived the continuity. But the same cannot be said about the economy. In the aftermath of the Supreme Court’s verdict and continued legal strangling of Finance Minister has put the previously guarded economic anxieties on display.

Asian Development Bank (ADB) in its latest report, Asian Development Outlook 2017 Update, noted that growth has improved but the government needs to address fiscal and external sector vulnerabilities caused by wider current account deficit, falling foreign exchange reserves, rising debt obligations and greater upcoming external financial needs.

State Bank in its monetary statement last Friday pointed out similar concerns by pointing out current account as one of the key challenges facing the economy. It went on to say, that structural reforms are crucial to improving trade competitiveness for the medium term. With so much concern expressed by its own central bank and ADB, what is government’s response to the bloated current account deficit?

If news reports are to be believed, the government is hell bent on trying out old tricks to discourage imports as a quick fix. They are also contemplating discouraging imports by coming up with yet another regime of regulatory duties. They had previously announced increased margin requirements to discourage imports earlier this year that had no impact. Later, Federal budget for FY 2917-8 expanded the list for regulatory duties on a larger number of items but that also failed to have any impact. Imports continued uninterrupted and yet the government wishes to try the same exact trick again with new vigour and zeal.

As always, these steps are galvanized by emphasizing that only non-essential and luxury items would be included in the regulatory duties regime for a limited impact on the masses. External trade of the country has shown extremely troubling trend for the last few years. Exports have receded from USD 24 billion in 2012 to USD 20 billion by 2017. Comparatively, imports kept their momentum to cross a hallmark figure of USD 50 billion during the outgoing year leading to a colossal trade deficit of USD 32 billion.

A careful and detailed analysis of policy facilitation measures reveals a persistent bias towards easy imports, whereas, exports lack such policy measures to incentivise. Pakistan’s exporting sectors complain of a continued eroding competitiveness. For instance, the country’s largest trade body, All Pakistan Textile Mills Association (APTMA), argues that electricity and gas prices charged to the industry are 25 to 30% higher compared to the region. Adding insult to injury is the fact that industry has hundreds of billions or rupees tied up in sales tax refunds that curtail liquidity in the market.

A frequently quoted reason for erosion of competitiveness includes the overvalued Rupee. IMF also pointed out in recent past that Pak Rupee does not reflect its true value. An overvalued currency by default incentivises the imports and disincentives the exports. Compared to the region all major currencies have experienced adjustments whereas Pak Rupee has been kept artificially overvalued by allowing its interbank trading in a narrow band. Finance Minister Ishaq Dar’s misconstrued understanding of economic stability has been the stable Pak Rupee. However, exports have become an unintentional causality of the overvalued rupee.

Government seems to be in no hurry to stop the freefalling trend in exports. Though, earlier in the year it reluctantly announced an Export Package of PKR 180 billion to be implemented in two parts. First part of this Export Package was completed by June 2017. 2nd part meant for FY 2017-8 entailed the eligibility of those exports who managed a ten percent increase over the last year. The rules of disbursement for 2nd part are yet to be finalized and announced despite the lapse of three months since the financial year started.

Apparently, Ministry of Commerce has been pleading with Finance Ministry to continue the rebate incentive without the precondition of ten percent annual enhancement. But that pleading seems to be falling on deaf ears so far. This is more troublesome as Pakistan is the only country in the South Asia where exports to GDP percentage has reduced to about 8% during 2016-7 from 14% or so in year 2000.

Despite this alarming trend of falling exports and its dwindling ratio against GDP, Government seems unmoved to take bold, holistic and strategic measures to reverse the declining trend of exports. Instead, it is reportedly planning to give its old trick another shot to discourage the imports in its desperate attempt to reduce the trade and current account balance. Such fixes have failed to work in the past and will not work again. Politics may find solace after its roller coaster ride in due course but economy may take a long term hit unless creative and rational solutions are given a chance.