Current account deficit widens to $3.557 billion in July-Sept

KARACHI: The country’s current account deficit more than doubled to $3.557 billion for the first three months of the fiscal 2017/18 as imports-fuelled trade deficit offset a positive impact of foreign inflows, the central bank's data revealed on Friday. 

Current account deficit amounted to $1.637 billion during the corresponding period a year earlier, the State Bank of Pakistan's (SBP) data showed.  In September, current account deficit rose to $956 million from $550 million in August.

Trade deficit enlarged 30 percent to $9.09 billion in the July-September quarter with $12.896 billion worth of import bills, mainly dotted by machinery and consumer goods imports.

But, exports also rose 12.4 percent to $5.676 billion during the three-month period. Remittances slightly increased 1.05 percent to $4.790 billion. Foreign direct investment soared 56 percent to $661.9 million in July-September FY2018. Economist Ashfaque Khan said the balance of payments position is getting worst. 

“The current account deficit could widen to $18 billion in FY18 as compared to $12 billion in the last fiscal,” Khan added. “The present government is likely to go to International Monetary Fund (IMF) for support.”   His calculation put financing requirement, including nine billion dollars for debt servicing, at $27 billion for the current fiscal.

“Around $15 billion might receive from traditional sources, like China and foreign direct investment, but how could the government fill a $12 billion gap,” the economist added. Ministry of finance measured external debt servicing liability for the current fiscal at $5.8 billion as against $6.44 billion a year earlier, down 10 percent.

“External debt to GDP ratio decreased to 20.6 percent in 2017, showing a net decline of 80 basis points in the external indebtedness of the country since 2013,” a finance ministry’s spokesman said in a statement. “Indeed external debt of the country is at a sustainable level and much lower than many comparable economies like India, Sri Lanka and Egypt.” 

Foreign exchange reserves held by the State Bank fell to $13.857 billion in September from $14.681 billion in August.   

Yet, the spokesman said foreign exchange reserves continue to maintain a healthy level. “This increase in reserves is driven by strong improvements achieved in the first quarter of the current fiscal year on account of exports, remittances, FDI, official inflows and other private inflows.”

Topline Securities Limited also threw weight behind the government’s argument. “We may not see sharp drawdown in foreign exchange reserves and Pakistan may not enter into another IMF program in FY2018,” the brokerage said in a report. 

An analyst agreed that currency devaluation appears a distant move by the government.  SBP said pressure on foreign exchange reserves built up due to persistent increase in imports. “One of the outcomes of an expanding economy was the surge in imports,” it noted in a latest report.

But, it supported measures to curtail imports.  Some analysts believe that government’s trade rationalisation strategy have mild impacts on the current account deficit.

“I don’t think a recent measure taken by the government to curtail hefty imports could abridge current account gap,” Khan said. “The imposition of increased regulatory duty on the imports of non-essential imports is expected to bring down imports to a small extent.”