Current account deficit almost doubles to $4.716bln in July-Jan

KARACHI: Pakistan’s current account deficit sharply widened 90.23 percent to $4.716 billion in the first seven months of the current fiscal year of 2016/17 on soaring import bills and depleting foreign inflows, the central data showed on Friday.

The current account deficit was equal to 2.5 percent of gross domestic product in July-January 2016/17 as against 1.5 percent ($2.479 billion) a year earlier, according to the State Bank of Pakistan (SBP).  In January, the current account deficit amounted to $1.189 billion as compared to $1.025 billion in the previous month.  Ballooning current account deficit was due to higher trade gap and slowdown in workers’ remittance inflows and foreign investment.

Remittances, which used to lend support to current account position, is now showing downward trend. Remittances, sent by Pakistanis living aboard, continue to decline since the start of this fiscal year. Remittances decreased 1.87 percent to $10.946 billion during the period under review. Economists feared that prospects of the balance of payments would further be bleak in the months to come.  

“Rising global oil prices, dried foreign inflows and lower exports would build pressure on the current account position,” said an analyst. The balance of trade in goods and services posted a deficit of $15.208 billion in July-January FY17 compared with $12.449 billion in the same period of the last year.

Trade deficit rose to $17.428 billion in this period from $13.544 billion a year ago due to increased exports and decreased imports. Exports fell to $11.685 billion from $12.073 billion, while imports rose to $29.113 billion from $25.617 billion.  Analysts said an expected spike in the oil and non-oil import bills would exert pressure on foreign exchange reserves of the country.  “Increasing share of liquefied natural gas in the import mix may become more challenging to bolster the current account position,” said an analyst. “A structural weakness in the external account depicted by continuous drop in exports and remittances pose threat to the economic sustainability.”

Foreign exchange reserves dropped $207 million to $21.824 billion during the week ended February 10 over the previous week, while those held by the State Bank of Pakistan fell $224 million to $16.993 billion.

Foreign direct investment (FDI) is somehow a source of support to the balance of payment position. The country attracted $1.161 billion in FDI in the July-January period of 2016/17, up from $1.056 billion a year earlier. That showed a 9.9 percent increase in FDI over the corresponding period of the last fiscal year. Pakistan’s image as an attractive investment destination is improving, despite security challenges and political instability. Analysts said the country mostly received FDIs from Netherlands, China, and Turkey. Investment made by Dutch companies in the country accounted for almost half of the FDI flows recorded during July-January FY17.  The Dutch companies invested $456 million in some businesses, particularly, the food sector in July-January FY17 compared with $9.6 million in the corresponding period of last year.