C/A deficit widens 50pc to $10.826bln in July-Feb

KARACHI: Pakistan’s current account deficit widened 50 percent to $10.826 billion in the eight months of current fiscal year, figures released by State Bank of Pakistan (SBP) showed on Tuesday.

On month-on-month basis, it narrowed to $1.241 billion in February 2018 from $1.665 billion in the previous month.

The increase was due to a strong domestic demand driven surge in trade deficit during the period under review.

Exports rose 12.2 percent to $15.970 billion in the eight months, while imports stood at $35.661 billion, registering 17.3 percent increase over the same period last fiscal.

Remittances from overseas Pakistani workers increased 3.41 percent year-on-year in the eight months to $12.833 billion.

Net inflow of foreign direct investment (FDI) stood at $1.941 billion in the July-February period of this fiscal from $1.678 billion a year earlier.

A growing current account deficit is taking a further toll on foreign exchange reserves.

Moreover, the SBP held foreign exchange reserves fell to $12.794 billion as of January 2018 from $14.106 billion in December last year.

Analysts said the International Monetary Fund's (IMF) post-program monitoring report on Pakistan struck caution on multiple fronts, particularly the persistently falling external position.

The fund, in its review, said net international reserves have declined from $7.5 billion at the end of the extended fund facility (EFF) to negative $0.7 billion in mid-February 2018. “As a result of fiscal slippages in fiscal year 2016/17, debt-related vulnerabilities have increased,” the IMF report said.

“With a little more than a quarter to go, we expect the current account deficit in fiscal year 2017/18 to reach 5.3 percent of the GDP, higher than the IMF’s 4.8 percent estimate,” said Bilal Khan, a senior economist at Standard Chartered Bank in a report issued on Monday.

Khan also said the policymakers could tap the bond markets. "We think this is likely in early second quarter. Amid a deteriorating relationship with the US, markets will be reassessing potential bilateral support from Pakistan’s friends, particularly China.”

“Despite this, we maintain that Pakistan will likely need IMF support in 2018,” the analyst said in the Standard Chartered report.

“As such, we expect policy to heed IMF advice for further monetary tightening and expect the SBP to hike its policy rate to 7 percent by end of the current fiscal year, with a second 2018 hike at its next MPC (monetary policy committee) meeting later this month,” the bank's report said.