Current account deficit widens 63 percent in July-Oct

KARACHI: The country’s current account deficit sharply widened 63 percent to $1.762 billion in the first four months of the current fiscal year of 2016/17 on falling exports and sluggish remittances, the central bank data showed on Friday.

The State Bank of Pakistan (SBP) had recorded $1.078 billion worth of current account deficit in the corresponding period (July-Oct) of 2015/16.

Khurram Schehzad, chief commercial officer at JS Global said multiple factors, including high international oil prices, falling exports and slowdown in remittances, were causing an increase in the current account deficit. 

The exports fell to $6.432 billion during the first four months of the current fiscal year from $6.865 billion in the corresponding period, down 6.31 percent. Remittances decreased 3.85 percent to $6.258 billion in the period under review.

The SBP, in its recent report on the state of economy, said the current level of private investments and savings need acceleration to keep pace with required investible resources. “Structural issues in the export industry need to be resolved,” it added.  The SBP forecast the current account deficit in FY17 between 1 and 1.5 percent of GDP.

Analyst Ahsan Mehanti at Arif Habib Corp said international commodity prices and an issue of UK exit from the European Union undermined the country’s exports.

International oil prices increased during the past few months, which swelled import bills. Increase in local oil consumption also pushed up the oil bills.

Analyst Saad Hashmi at Topline Securities attributed the high current account deficit so far this year to no disbursal of the coalition support fund (CSF).

The US withheld the release of the first tranche of $350 million under the CSF out of $900 million committed for this year as non-military assistance. Foreign investment inflows are also not encouraging. Foreign direct investment fell 48.2 percent to $316.1 million in July-Oct of 2016/17 over the previous year. Despite a decline in foreign investment from China, which pledged $46 billion of investment under the China-Pakistan Economic Corridor (CEPC), an upward trend is expected in the coming period. FDI is expected to reach $2.5 and three billion in the current fiscal year as against $1.9 billion last fiscal.

 “The deficit will be curtailed in the coming months owing to inflows under the CPEC projects,” Mehanti said. The announcement of textile package from the government would also boost exports from the key foreign revenue spinner.