KARACHI: Pakistan’s current account deficit widened more than two times to $7.247 billion during the first 10 months of the current fiscal year of 2016/17, the central bank said on Wednesday, mainly due to subdued exports and growing imports.
The State Bank of Pakistan (SBP) recorded the current account deficit at $2.378 billion in the July-April period of 2015/16.
“It’s not at record high but the numbers are staggering,” said a renowned economist. The deficit hit record high in 2007/08 due to spike in oil prices.
“Within a current account shortfall, a fundamental problem lies with a huge growth in imports ranging from oil to non-oil, which have been doubled due to overvalued local currency,” the economist added. “The phenomenal growth in imports in 10 months has not been happened in the history of the country.”
The country’s trade deficit surged 40 percent to $26.55 billion in July-April FY17. Imports rose to $43.473 billion during this period from $36.265 billion a year earlier, while exports stood at $16.918 billion as compared to $17.314 billion a year ago.
Alone in April, the current account deficit was registered at $1.133 billion. The current account gap reached equivalent to 2.7 percent of GDP in July-April FY17 as compared to one percent in the same period last year.
The government set the full-year current account deficit target at 1.5 percent, while SBP projected it at between 1.0 to 2.0 percent. The deficit stood at 1.2 percent in FY16.
Analysts said the current account data showed that balance of payments position has worsened more than expected. They, however, predicted the full-year projection at $6.5 billion.
They said the current account shortfall is expected to remain a concern over a short-to-medium term amid upward trend in oil prices, which could push the import bill higher.
The SBP took an administrative measure to curtail a growing trade deficit by imposing 100 percent cash margin on import of consumer and luxury items in February. Yet, the measure couldn’t offset the impact of growing imports related to infrastructure development projects under the $57 billion China-Pakistan Economic Corridor (CPEC).
Analysts said though CPEC is expected to foster Pakistan’s long-term economic growth, it is expanding the current account deficit. The CPEC imports are likely to increase as nearly half of its total investment has been allocated for power generation projects. A continued surge in imports of capital goods – machinery and equipment – will keep trade account under pressure, they added.
In July-April, foreign direct investment edged up 12 percent to $1.733 billion, giving a little support to the external sector.
Yet, remittances fell to $15.596 billion during the 10-month period as against $16.044 billion a year ago.
Analysts said the external sector’s stability will also be dependent on a boost in foreign exchange receipts through non-trade revenue sources.
The country received only $550 million from the United States under coalition support fund in July-April FY17.
An analyst said the foreign debt repayments sharply rose 35 percent in the period under review, while net external inflows fell 40 percent, “which is not sustainable for the balance of payments at all.”
“This has led to an accumulation of foreign debt,” he added. The SBP’s foreign exchange reserves stood at $16 billion as of May 5. The reserve position is sufficient to finance the imports only for less than four months.
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