Pakistan Facing  Economic Challenges: Navigating Fiscal Deficits, External Account Crisis.

In the last eight months, the PML N-led government has borrowed Rs1.961 trillion from commercial banks to cover its expenses. This is much more than the amount borrowed by the previous PTI government in the same period. However, the current government did not create the fiscal crisis entirely, as it was already expanding during the previous government's last year.

The fiscal deficit is the root cause of the external account crisis, and the government's income and expenses are the gap. The forex reserves of SBP have reduced significantly from March 2022 to March 2023, and inflation has increased due to the decline in rupee value, high energy prices, and food shortages.

The fiscal deficit will continue to rise in the current fiscal year, and the government will borrow more debt from commercial banks. Due to high energy prices, interest rates, and withdrawal of subsidies, the private sector's credit appetite is already low.

The manufacturing output has fallen, and the economic mess may deepen due to political chaos. Therefore, policymakers need to make a consensus framework to increase revenue and reduce expenses and suggest solutions to increase exports and remittances. They should also propose how to deal with foreign debts and ensure its implementation under the supervision of the parliament.

Pakistan needs to address its key economic issues, including the shortage of foreign exchange, to avoid future demands from the IMF. It will also encourage friendly countries to provide forex support and make corporate Pakistan confident enough to achieve economic stability.

In the coming months, there is a chance to sustain the growth in service exports. A solid pro-export growth strategy should be implemented to achieve sustainable growth in the next fiscal year and beyond. The strategy should focus on diversifying export destinations and offering incentives to IT and IT-enabled service exporters.