KARACHI: Oil price recovery, together with sluggish foreign inflows and soaring import bills, is posing a challenge to the current account deficit, which is likely to surpass six billion dollars by end-June this year, a senior economist said on Tuesday.
“The outlook may be weaker given our expectation of higher oil prices and increased risk of global financial-market volatility,” Bilal Khan, senior economist at Standard Chartered Bank told media.
Khan said high capital goods imports, such as machinery and plants for the development projects under the China-Pakistan Economic Corridor, are also expected to further increase the import bill in 2016/17.
He said the latest balance of payments figures underlined vulnerabilities to the external sector of the economy. The current account deficit widened to 2.2 percent of gross domestic product in first half of the current fiscal year of 2016/17 from 1.3 percent in the same period last year.
The current account deficit surged to $3.585 billion in July-December FY17 from $1.865 billion in the corresponding period of the last fiscal year.
“Current account deficit is likely to reach $6 to 6.5 billion by the end of FY17,” Khan added. “(However), the country seems well tolerant to external shocks, a slowdown in remittances, sluggish foreign direct investment and stagnant exports are reasons for concerns.”
Current account deficit was recorded at 1.2 percent of the GDP in the 2015/16. The economist also anticipated a 25 basis points increase in interest rate by the State Bank of Pakistan in the second half of the current fiscal year. “Domestic economy would grow more than five percent in FY17 on the back of improved performance of the agriculture sector.” Earlier, Dima Jardaneh, head of Middle East and North Africa Economic Research at Standard Chartered Bank said the year 2017 looks set to pan out very differently from previous years, with a veritable jungle of risks and opportunities lurking ahead. “The election of Donald Trump as US president is changing the global environment,” Jardaneh said.
“After years of seeing monetary easing as the only game in town to support growth, global markets are reacting positively to Trump’s victory, anticipating that the US will enter a period of fiscal expansion.
Tax cuts and infrastructure investment are expected to reflate the US economy, which would be positive for the global economy.”