C/A deficit narrows 4.57pc in July-October

KARACHI: Pakistan’s current account deficit narrowed by 4.57 percent or $232 million in the first four months of the current fiscal year on lower trade gap in goods and higher remittance inflows, the central bank figures on Thursday.

The current account deficit stood at $4.840 billion during July-October 2018/19, compared with $5.072 billion in the same period last year, the State Bank of Pakistan (SBP) data showed. However, the current account deficit presented a dismal picture during October 2018 due to higher import bill.

The deficit widened to $1.218 billion in October from $909 million in the previous month, the SBP data showed. Contraction during four months was helped by slowdown in trade deficit.

The Pakistan Bureau of Statistics reported last week that trade gap reduced by a meagre 1.97 percent to $11.786 billion in July-October amid stronger exports. Exports of goods rose by $3.52 percent to $7.285 billion as tax breaks on exports, and weaker rupee boosted foreign exchange earnings. Imports however inched up to $19.071 billion from $19.060 billion a year earlier.

The deficit on trade in services widened to $11.601 billion from July to October this year, compared with $11.455 billion in the same period last year.

Remittances to Pakistan increased 15 percent to $7.419 billion in July-October 2018/19. The current account deficit has started seeing reduction since the first quarter of this fiscal year.

Analysts welcomed the narrowing current account deficit. They said it has improved the balance of payments position and potentially eased fears about foreign debt repayments.

“Pakistan’s move to IMF and a much larger than anticipated Saudi external support package, should ease off the balance of payment concerns,” said a report published by Alfalah CLSA on Wednesday. “We forecast FY19 current account deficit, in terms of GDP, to remain significantly lower at 4.4 percent versus 5.8 percent witnessed in FY18. That said, with oil trending considerably above our comfort band of $65-70 per barrel we see stronger inflation numbers and further interest rate lift-off,” it said.

The central bank expects the current account deficit to be in the range of five to six percent of GDP for FY19 against the government target of 4.0 percent.

“Total goods import is estimated to post a 3.2 percent decline, food, machinery and transport good imports are expected to post 13.8 percent, 20.4 percent, 14.7 percent decline, respectively, whereas energy import bill is expected to post a 5.7 percent increase only (due to oil deferment facility),” the report added.

Services balance would deteriorate by 10.9 percent year-on-year in FY19, mainly due to higher freight charges, it projected.

Rupee is expected to weaken further, depreciating to 140 by the end of this fiscal year. Since December 2017, it has depreciated about 25 percent against the dollar.

Pakistan has secured a $3 billion direct deposit and $3 billion deferred oil payment facility from Saudi Arabia. Cumulatively, the $6 billion package amounts to roughly 50 percent of Pakistan’s FY19 net financing gap.