Current account deficit widens to $591 million in July

KARACHI: Current account deficit widened to $591 million in July 2016, more than double from $234 million in the same month of last fiscal year, the central bank data showed on Friday.

The deficit during the first month of the current fiscal year of 2016/17 posted a year-on-year expansion of 152 percent from the corresponding month of 2015/16.

Analyst said slow down in remittances and increased in trade deficit due to low exports are behind the large current  account deficit.     

The balance of payments suffered a major setback after a notable 20 percent decline in workers' remittances in July, they added.

Remittances inflows dipped to $1.3 billion in July 2016, compared with $1.663 billion in the same month of the last fiscal year.

Similarly, the trade deficit increased to $2.1 billion against $1.76 billion in July 2015 owing to low textile exports and higher machinery and food imports.

The State Bank of Pakistan (SBP) analyst had already hinted that the uncertain commodity prices could increase the size of trade deficit during the current fiscal year. Moreover, remittances inflows are likely to face downturn due to economic slowdown in Gulf region.

A slide in foreign direct investment also took toll on overall current account balance.

The current account is the broadest indicator of trade in goods and services. It shows flows of primary and secondary income between residents and nonresidents.

The country’s current account in recent past, benefited from international soft commodity prices and stable remittances flows.     

“CSF (Coalition Support Fund) inflows have also stalled. IMF’s regular inflow will not be available anymore, with repayments starting in 17/18,” said an analyst at Tresmark.

“These all not bode well for the balance of payments, while oil prices are projected to stay under the $50 mark for the next 12 months.”

Furthermore, the State Bank of Pakistan also feared that uncertainties about economic recovery in the EU in the post Brexit period can have repercussions for financial inflows and trade to the country.

On optimistic note substantial bilateral and multilateral project loans related flows in the financial account will help maintain an overall surplus in the balance of payments, analysts said.

Further addition to this surplus is likely to come from increased foreign portfolio investments on the back of reclassification of Pakistani stock market in the Emerging Markets Index by MSCI.

 The State Bank of Pakistan data showed the country posted a wider deficit of $1.878 billion in the trade of goods and services in July, compared with a $1.778 billion shortfall in same month last year.  

In terms of the financial account, Pakistan attracted $64 million in direct investment in the first month, against 70 million last.