Current account deficit shrinks 48.5%

Amounts to $1.2b, down from $2.4b in comparative period of previous year

KARACHI:

Pakistan’s current account deficit amounted to $1.2 billion in July-December, according to data released by the State Bank of Pakistan (SBP) on Wednesday.

The current account deficit shrank 48.5%, or $1,196 million, year on year in the first six months of FY16, as it amounted to $2.4 billion in the first half of the preceding fiscal year.





The notable improvement in the current account balance was partly due to shrinking trade deficit in both goods and services. It amounted to $10 billion in Jul-Dec as opposed to $11.4 billion recorded over the comparable period of the last year.

A deficit or surplus reflects whether a country is a net borrower or lender of capital with respect to the rest of the world.

As a percentage of the gross domestic product (GDP), the current account deficit decreased from 1.8% in July-Dec 2014 to 0.9% in July-Dec 2015.

The country recorded a current account deficit of $2.28 billion in the last fiscal year, which was significantly smaller than the deficit of $3.13 billion in 2013-14. Analysts believe the encouraging trend in the country’s current account balance in the recent past is a consequence of major inflows under the Coalition Support Fund (CSF), substantial growth in workers’ remittances and a sharp reduction in the oil import bill.

According to the latest quarterly report on the state of the economy issued by the State Bank of Pakistan (SBP), the major decrease in the prices of imported commodities is going to bode well for trade deficit.



KASB Securities analyst Sarah Mazher believes exports and imports in 2015-16 will remain below target, with trade deficit likely to clock up under the mark of $17.4 billion.

Pakistan’s total imports of goods in July-Dec were valued at $19.9 billion as opposed to $22.1 billion in the same six months of the preceding fiscal year, which shows an annual decrease of almost 10%.



Pakistan exported goods worth over $10.8 billion in July-Dec as opposed to the exports of goods valuing $12.1 billion in the same period of the last year, reflecting an annual decline of 11%.

Workers’ remittances remained $9.7 billion in July-Dec, up 6.2% from the same months of the last year. Remittances have played a significant role in improving the country’s external sector, as they make up for almost 50% of the import bill and nearly cover the deficit in goods and services accounts.



Declining oil prices are going to result in a year-on-year drop of over 23% in Pakistan’s oil import bill in 2015-16, as per the estimate of the IMF. However, many analysts believe the deficit in the current account is unlikely to change into a surplus by the end of 2015-16 despite a massive drop in international oil prices.

Published in The Express Tribune, January 21^st, 2016.

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