Current account deficit widens to $6.13 billion in nine months

Equivalent to 2.6 percent of GDP 

KARACHI: The country’s current account deficit widened 161 percent to $6.13 billion during the July-March period of 2016/17 as growing imports, subdued exports and sluggish remittances marred the external account position, the central bank data showed on Wednesday.

The State Bank of Pakistan (SBP) said the current account deficit was $2.35 billion in the same period a year ago. The current account deficit of July-March FY17 is equivalent to 2.6 percent of the gross domestic product as against 1.1 percent in the corresponding period of FY17.

SBP widened its view of this fiscal year’s current account deficit target to 1.0-2.0 percent of GDP, which is still at the lower level when compared to the projections of foreign bilateral and multilateral lenders.

The International Monetary Fund forecast the country's current account deficit at 2.9 percent in 2017 and 3.0 percent in 2018. The deficit would be on the upward trend as compared to 1.1 percent in 2016, it said in its latest economic outlook.

The Asian Development Bank (ADB), however, remained relatively benign, foreseeing the current account deficit at 2.1 percent of GDP in FY17. ADB said the widening current account deficit was mainly due to falling remittances, delayed coalition support fund and increase in balance of trade gap.

Exports continued to decline in the third consecutive years due to waning global demand and weak international commodity prices as well as domestic structural issues, such power outages and lack of investment in modernisation and currency appreciation in real effective terms, it said.

“The current account balance will likely deteriorate further in FY2018 to 2.5 percent of GDP with somewhat higher global oil prices and accelerating infrastructure investments connected with CPEC (China-Pakistan Economic Corridor),” it added. Analysts said the mounting deficit in July-March was alarming. It would exert further pressure on the external account in the remaining months of the current fiscal year, they said.

The widening current account deficit was also driven by a rise in overall balance of trade in goods and services, which soared to $19.76 billion in July-March FY17 as compared to $15.389 billion a year ago. Exports fell 3.06 percent to $15.119 billion, while imports rose 18.67 percent to $38.504 billion. That took the total trade deficit to $23.385 billion for the nine months of this fiscal year from $16.84 billion in the corresponding period of the last fiscal year.

Imports are soaring mainly because of capital spending related to projects under CPEC. Besides, the fall in workers’ remittances are adding insult to injury. Remittance inflows flows declined to $14.057 billion in the July-March period, down 2.3 percent a year earlier.

Net foreign direct investment (FDI) to Pakistan increased 12.4 percent to $1.6 billion during the first nine months of the current fiscal year. The FDI was primarily China-driven. The foreign exchange reserves of the country rose $194 million to $21.74 billion by the week ended April 7 from the preceding week.