Pakistan’s current account deficit widens to $2.2b in July

KARACHI: Pakistan’s current account deficit widened 13.87 percent to $2.200 billion in the first month of the current fiscal year, compared with a deficit of $1.932 billion in the same period of last year, the central bank data showed on Monday.

The trade deficit in goods slightly rose to $3.192 billion in July 2018 from $3.182 billion as exports recorded a marginal increase.

Imports inched up to $4.838 billion, compared with $4.809 billion in the corresponding period of last fiscal year, the State Bank of Pakistan (SBP) data showed. Exports increased to $1.646 billion from $1.627 billion.

The last and the latest balance of payments figures undermine the expectations of imports contraction despite sharp depreciation in the exchange rate and monetary and administrative measures taken by the caretaker government and the SBP.

The former caretaker finance minister Dr Salman Shah said the current account gap underlined fears about external imbalances in the country’s economy.

Describing the current account figures as very ‘alarming’ he said, “Currency devaluation in the last seven-eight months hasn’t improved Pakistan’s trade position.” It does not help imports fall sharply, and increase exports, he said, adding, “We have to wait for August balance of payments data to understand whether the rupee devaluation is effective.” Shah also said the new PTI government will have to fix the balance of payments problem.

“The government needs to create access to support from other creditors if it doesn’t want to go to the IMF,” Shah said. The country’s external financing requirement stood at $15-18 billion for the current fiscal year. The central bank’s foreign currency reserves fell $216 million to $10.153 billion as of August 10.

Pakistan paid $254 million in debt repayments in July, compared with $235 million in the corresponding period a year earlier. Some analysts expect the current account deficit will touch $24 billion this fiscal year.

The deficit came in at $18 billion in the last fiscal year of 2017/18, compared with $12.6 billion in the previous year. “The deficit has reached unsustainable level. We’ve wasted four months including 2.5 months of the caretaker government to fix the balance of payments issue,” said Dr Ashfaque H Khan, dean at NUST School of Social Sciences. “The interim regime should have started taking corrective measures for imports compression and exports promotion from June 1,” he said.

The new government should work to counter a “sustainable current account deficit”, he added. The central bank in its last monetary policy document stated that the near-term management of the country’s external accounts was of critical importance. “In the absence of matching financial flows, a notable portion of this higher current account deficit was financed by using the country’s own resources,” it said.