Current account deficit widens 50pc to $14.035bln in July-April

KARACHI: Current account deficit widened to 5.3 percent of gross domestic product, or $14.035 billion, in the first 10 months of the current fiscal year of 2018 as merchandise imports continued to broadly outstrip exports, while foreign inflows from other sources remained insufficient to finance the gap, the central bank data showed on Friday.

The State Bank of Pakistan (SBP) said the current account deficit increased 50 percent from $9.354 billion in the corresponding period a year earlier.

Government estimated current account deficit for the outgoing fiscal year at 4.4 percent or $13.7 billion, while it set an ambitious target of 3.8 percent or $12.5 billion for the next fiscal year.

Exports were recorded at $20.558 billion in July-April compared with $18.141 billion in the corresponding period of the last fiscal year, according to the SBP’s data. Imports stood at $45.560 billion in July-April compared with $38.912 billion a year ago.

Analysts said growing profit repatriation by foreign firms operating in Pakistan also increased the current account gap.

“Higher dividend/interest outflows and lower current transfers took current account deficit to $1.955 billion in April 2018,” Zeeshan Afzal, an analyst at Insight Securities said.

Current account deficit amounted to $1.214 billion in March.

Afzal said SBP’s gross reserves declined as the deficit was financed through $1.596 billion loan by the government and $506 million by other sectors.

Workers’ remittances rose 3.92 percent to $16.257 billion during the July-April period. Net foreign direct investment was only $2.237 billion with a growth of 2.4 percent.

Analysts expect the current account deficit to further widen as imports are picking up and capital inflows are likely to remain stagnant.

“The current account deficit is likely to be $17-18 billion by the end of this fiscal year,” economist Ashfaque Khan said.

The economy is extremely vulnerable to external shocks due to rising current account gap and foreign debt servicing.

Khan sees external debt servicing to reach $8.5 billion in the fiscal year of 2017/18. “The dollars requirement for the year would be $8.5 billion.”

The economist estimated that the country would receive external flows from various sources to the extent of $14-14.5 billion.

“This will leave a financing gap of $12-12.5 billion during the year. Accordingly, Pakistan’s external debt and liabilities were projected to rise to $95-96 billion by June-end from $83 billion in the previous year.”

External debt and liabilities reached $91.8 billion by March-end. Total foreign exchange reserves on May 11 were $17.067 billion.

Out of which $10.798 billion were the net reserves with the central bank and $6.268 billion was held by commercial banks.