Current account deficit shrinks to $1bln in July-November

KARACHI: Pakistan’s current account deficit sharply narrowed to $1.005 billion, 0.8 percent of GDP, in the first five months of the 2015/16 fiscal year as the country’s import and export gap is shrinking, the central bank’s data showed on Friday.

The State Bank of Pakistan’s (SBP) data showed that the current account deficit stood at $2.457 billion [equivalent to 2.2 percent of GDP] in the corresponding period of the last fiscal year.  

The data further revealed that current account posted a deficit of $216 million in November this year.

Analysts said cheaper oil imports and healthy growth in workers’ remittances lowered the current account deficit during the five months of the current fiscal year.

The trade deficit declined 4.8 percent in FY16 mainly due to decrease in oil imports.

Total imports contracted to $16.324 billion in July-November FY16 as against $18.622 billion in the comparable period of FY15.  Petroleum imports stood at $2.91 billion following a slump in oil market, against $5.14 billion in July-November FY15.  

Many analysts foresee the external sector to remain comfortable during the course of this fiscal year as oil prices are expected to soften.  It is trading below $40 a barrel in the international market.   

The State Bank has forecasted the current deficit at 0.5 to 1.5 percent of GDP in FY16 as against the government target of 1.0 percent.

“The SBP’s outlook for FY16 is realistic,” said Sakib Sherani, chief executive officer at Macroeconomic Insights.

“The current account deficit should be contained to around one percent of GDP-most likely lower than that,” he said. “The projections for the FY16-FY18 are less rosy.”

The recent slowdown in Chinese growth and increase in interest rate by the US Fed Reserve are the global events creating challenges for Pakistan to generate forex earning.   

The expected monetary tightening by the Fed caused surge in capital outflows from emerging markets.  

Pakistan runs a hefty deficit on its trade in goods, which stood at $3.130 billion in FY13. However, the improvement in the external sector was strengthened further in FY15 and the deficit narrowed to $2.62 billion,

The volume of exports fell to $8.844 billion as compared to $9.908 billion in FY15.

This dismal performance was offset by the efforts of Pakistan’s service sector. The trade in services posted a smaller deficit than it had the year before.

It stood at $688 million in July-November FY16 as against $1.24 billion during July-November FY15.