Current account deficit widens 93pc to $3.585bln in July-Dec

KARACHI: The country’s current account deficit widened a staggering 93 percent to $3.585 billion in the first half of the current fiscal year of 2016/17, as the gap between imports and exports continued to rise while remittances were on the downward trend, the central bank data showed on Wednesday. 

The State Bank of Pakistan (SBP) data showed that current account deficit amounted to $1.865 billion in the same period of 2015/16.  

The SBP recorded current account deficit at $1.08 billion in December as compared to $828 million in November.  

Analysts said low remittance flows and widening trade deficit increased the current account gap.  

Remittances fell 2.27 percent to $9.46 billion in the first six months of 2016/17 as economic slowdown corroded the income of overseas Pakistanis. 

Trade deficit widened to $14.490 billion in the period under review as against $11.856 billion in the comparable period.

The deficit on trade in goods and services also fell to $12.528 billion from $10.636 billion a year ago.

Analysts said the recently-announced Rs180 billion incentives package is likely to give a boost to flagging exports.

The government announced the export incentives scheme for five export-oriented sectors, including textile.

The stimulus includes a score of rebates given that the exporters are able to increase exports by 10 percent in the second half of the current fiscal year.

The current account deficit reached 2.2 percent of gross domestic product in July-December FY17 as against 1.3 percent in the corresponding period of FY16. The SBP, in its first quarterly report, revised its forecast for the current fiscal year up to one to two percent of GDP from 0.5-1.5 percent earlier.     

Economist Ashfaque Hasan Khan said the central bank understated the current account projection. 

Khan said the full year deficit could be higher than the one forecasted by the economic mangers of the country. 

“The current account gap is expected to reach seven billion dollars in FY17,” he said. “I see pressure mounting on the forex reserves and the financing of the current account deficit might be very challenging for the government.”

The foreign exchange reserves amounted to $23.20 billion as of January 6; of that, the SBP’s reserves stood at $18.309 billion.  

Analysts said the government will require more foreign borrowing to finance the current account with the exports declining and remittances and foreign direct investment dried-up.  

The pressure on the balance of payments means that the country would remain vulnerable to external shocks and downgrade risks to its credit rating.