Current account deficit likely to stand at 2.5pc of GDP in FY17

KARACHI: Pakistan’s current account deficit is expected to stand at 2.5 percent of GDP for the current fiscal year of 2016/17 as against 1.2 percent on widening trade deficit and waning remittances, a brokerage reported on Wednesday.  

Analyst Hamza Kamal at Taurus Securities Limited said firstly imports of machinery for projects under China-Pakistan Economic Corridor would be a key reason, while exports are also decreasing.  

Export volumes of petrol and diesel would soar to 6.5 and 8.1 million tonnes, respectively in 2016/17 as compared to 5.8 and 7.7 million tonnes in 2015/16 as local oil demand is increasing. Oil price recovery would also jack up import bill, accounting for 20 percent of the country’s total imports.

The State Bank of Pakistan projected the current account deficit between one and two percent for FY17. It was 1.1 percent of GDP ($3.262 billion) in FY16.  Current account deficit stands at $5.4 billion (2.6 percent of GDP) in the July-Feb period of 2016/17 versus $2.4 billion (1.3 percent of GDP) in the corresponding period last fiscal year.

Trade deficit was recorded at $15.4 billion in July-February of 2016/17 as against $12.1 billion in the same period last year. Machinery imports surged 42.3 percent and petroleum consumption rose 45.4 percent during this period. “With remittances remaining flat year-on-year at $12.4 billion, the deterioration in trade deficit increased current account deficit by 1.2 times YoY to $5.5 billion,” Kamal said.

He said on monthly basis trade deficit stood at $2.2 billion in February, demonstrating a sequential hike of 9.8 percent, which translated into a reduction in current account deficit to $0.7 billion versus $1.2 billion in January.   “However, with import cover standing at four-month plus, we are still optimistic on the government being able to maintain exchange rate at the Rs105.5/USD level for 2017 but major depreciation can be witnessed in 2018 if import cover deteriorates,” he added. 

Kamal said coalition support fund inflows of $550 million in early March should provide the much-needed buffer to the foreign exchange reserves absorbing the effects of scheduled repayments of Paris Club debt and Eurobonds ($750 million) in the latter part of the year.