C/A deficit shrinks 10.6pc to $6.09bln in July-November

KARACHI: Current account deficit noticeably narrowed around 11 percent to $6.090 billion in the first five months of the current fiscal year of 2018/19 as shrinking trade gap, together with strong remittance inflows, lent some support to ailing external account position, the central bank’s data revealed on Wednesday.

The State Bank of Pakistan’s (SBP) data showed that the current account deficit amounted to $6.182 billion during the July-November period of the last fiscal year. The current account deficit, however, widened 3.5 percent year-on-year to $1.255 billion in November.

In July-November, trade deficit slimmed to $14.513 billion from $14.814 billion a year ago, Pakistan Bureau of Statistics data showed. Exports of goods increased 1.29 percent to $9.120 billion, while imports slightly fell to $23.633 billion from $23.818 billion a year earlier.

The rupee depreciated almost 29 percent since December 2017, improving profit margins of the exporters. The government also took administrative measures such as increased duties on imports of luxury items to slash import bills.

Higher growth in remittances also contributed to narrowing current account deficit during the period under review. Workers’ remittances to Pakistan totaled $9.028 billion in July-November FY2019 compared with $8.021 billion a year ago.

Last week, the country received the second one billion dollars tranche of a $3 billion Saudi bailout. The central bank’s foreign exchange reserves are expected to increase to $8.2 billion following the latest inflows from Saudi Arabia. The foreign exchange reserves held by the SBP had dropped $242 million to $7.26 billion as of December 7.

Pakistan’s balance of payments position may further breathe a sigh of relief on an expected two billion dollars of inflows from China this month, while last Saudi tranche is expected in January. The government is also currently negotiating a bailout program with the International Monetary Fund (IMF) to meet its foreign payment obligations. Last month, IMF team met with the government, but talks remained inconclusive with the next round of talks expected from mid of the next month.

The SBP, however, believes the current account deficit is still higher. The widening gap between exports and imports will continue to pose a risk to the current account deficit outlook despite expected inflows.

“Going forward, there is an expectation of receiving higher foreign inflows from both private and official sources during the second half of FY19,” the SBP said in a last monetary policy statement.

“Furthermore, recent bilateral arrangements including the deferred oil payments facility would also be available to the market from January 2019 onwards. The projected decrease in the current account deficit that could further be supported by the recent decline in international oil prices will instill confidence in the foreign exchange market. These developments would help reduce pressures on SBP’s net liquid foreign exchange reserves.”