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Tuesday March 19, 2024

Current account deficit surges 48.10pc to $9.156bln in July-Jan

By Our Correspondent
February 21, 2018

KARACHI: Current account deficit surged 48.10 percent to $9.156 billion in the seven months of the current fiscal year 2017/18 after imports accelerated while crude prices surged, data published by the State Bank of Pakistan (SBP) showed on Tuesday.

The July-January current account deficit widened to 3.1 percent of gross domestic product.

The current account deficit stood at $6.182 billion in the corresponding period of the last fiscal year.

January 2018 current account gap widened to $1.617 billion, compared with $1.256 billion in December last year.

Persistent rise in the current account deficit was due to a higher trade gap led by a significant increase in imports as compared to exports. Pakistan’s trade deficit rose 24.18 percent to $21.546 billion in July-January FY18.

Exports increased 11.8 percent to $13.909 billion in the seven months of FY18, while imports came at $31.042 billion, showing 18 percent rise over the same period of the last year, the SBP’s data revealed.

Remittances posted a meagre growth of 3.55 percent in July-January FY18. Pakistani workers abroad sent home $11.383 billion during the period under review.

Foreign direct investment (FDI) remained dried up in the seven months of FY18, as FDI inflows came to $1.487 billion during July-January FY18, compared with $1.532 billion a year ago.

The SBP, in its monetary policy statement issued last month, said there has been visible improvement in export growth and remittances are marginally higher.

However, current account deficit remains under pressure mostly due to the high level of imports.

On the external front, exchange rate adjustment in December 2017 is expected to help ease the pressure.

The central bank, earlier, said recent rupee depreciation, a government-backed export incentive package, adjustments in regulatory duties, favourable external environment, and expected increase in workers’ remittances, would contribute to a gradual reduction in the country’s current account deficit.

“While increase in international oil prices pose a major risk to this assessment, managing overall balance of payments in near term depends on the realisation of official financial flows,” it said.

Analysts said a hefty current account deficit was exerting pressure on the foreign exchange reserves of the country.

The central bank’s foreign exchange reserves stood at $12.833 billion during the week ended February 9, compared with $13 billion in the preceding week.

Dr Ashfaque H Khan, dean at NUST School of Social Sciences expects current account deficit to be $18 billion in FY18.

“With $8.5 billion external debt servicing, Pakistan needs $26.5 billion to finance the current account deficit and to meet external debt servicing requirements,” he said.

The SBP predicted that the current account deficit would be four to five percent of gross domestic product during FY18.

Pakistan’s external debt and liabilities rose sharply to $89 billion at the end of December, 2017.

Dr Khan said based on the developments in the first half of the fiscal year it was safe to predict that exports would likely end in the range of $23.5-24.5 billion in FY18.

Imports on the other hand, would likely be in the range of $57 to $58 billion, with trade balance further deteriorating to $33.5 billion this fiscal year.

“Pakistan is likely to receive external financing from various traditional sources, Chinese sources, and FDI amounting to $14 to $14.5 billion. This leaves a financing gap of $12 to $12.5 billion in FY18,” he added.

Dr Khan feared that Pakistan’s foreign exchange reserves would be insufficient to meet the financing gap of $12 to $12.5 billion for the current year.