By: Farrukh Saleem

Pakistan’s internal economy is rupee denominated and our external economy is dollar denominated. Pakistan’s external economy comprises the entire stream of dollar inflows and dollar outflows. Here’s the record on imports or dollar outflows: Our imports have gone up from $35 billion a year five years ago to nearly $45 billion a year. That’s an increase of 28 percent in five years.

Red alert: Our exports – or dollar inflows – have gone down from $25 billion a year five years ago to $20 billion a year. That’s a decrease of 20 percent in five years. And on top of all that, dollars coming back to Pakistan from Pakistanis working abroad are also trending downwards. No wonder our current account deficit – which is the sum of all dollar inflows and outflows – deteriorated by over 90 percent during the first seven months of the current fiscal year (compared to the same period last year).

Red alert: Our foreign exchange reserves – built up largely by high interest rate loans – are falling; and falling fast. Over the past few months, reserves have fallen from around $19 billion to a current level of under $17 billion. If the trend continues – especially when international oil prices have doubled over the past year – we would be forced to go back to the IMF by early-2018.

Yes, the China-Pakistan Economic Corridor (CPEC) is now being presented as the panacea – a solution to all our difficulties including falling exports and declining foreign exchange reserves. Red alert: Assuming that some $35 billion of Chinese loans is utilised for energy projects, Pakistan’s annual financing burden will go up to $5.3 billion a year plus an insurance premium of $2 billion upfront.

Pakistan’s external, dollar-denominated economy is moving from bad to worse. Yes, the State Bank of Pakistan (SBP) has now moved in to bring some stability to the worsening external, dollar-denominated economy by imposing a 100 percent cash margin for imports of 404 non-essential, non-oil import items. What that means is that the Government of Pakistan has no policy remedy and the SBP has therefore jumped in with an administrative measure. History has it that administrative measures work – if they do – only over the short term.

Rewind back to early-2013 when foreign exchange reserves had started falling like nine pins-and within a few months we had to rush to the IMF for a 36-month, $6.4 billion Extended Fund Facility (EFF). Red alert: We are back to where we were in early-2013 with one big difference – our external debt servicing load is now twice as heavy. Imagine: over the next 14 months Pakistan must pay back $6.5 billion in principal plus interest.

To be certain, our march back to yet another IMF rescue package has begun. The external sector of our economy is weakening by the day. Yes, the Economic Coordination Committee (ECC) of the cabinet has shown “concern over the widening of the current account deficit” but the government lacks either the capacity or the will-or both-to turn the tide via a policy response. Yes, the SBP held a meeting with the heads of all major banks in the country to “improve their capacity to control money laundering” in the amount of $10 billion a year but that’s the farthest that the SBP is willing to go.