Current account deficit shrinks 22.9%

Amounts to over $2b, reduces by $605m; better trade balance of services major cause

KARACHI:

Pakistan’s current account deficit amounted to over $2 billion in July-January, according to data released by the State Bank of Pakistan (SBP) on Friday.

The current account deficit shrank 22.9%, or $605 million, year -on-year (YoY) in the first seven months of the fiscal year, as it amounted to $2.6 billion in the same period of the preceding fiscal year.



The country’s current account deficit widened rather sharply last month. It clocked up at $610 million in January, which was more than double the average monthly current account deficit recorded in the first half of 2015-16.

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

Reasons for improvement

The improvement of over one-fifth in the current account balance in the last seven months was partly due to a decline of almost 30% in trade deficit in services. It amounted to $1.2 billion in Jul-Jan as opposed to $1.8 billion recorded over the comparable period of the last year.

As a percentage of the gross domestic product (GDP), the current account deficit decreased from 1.7% in the preceding fiscal year to 1.2% in July-Jan.

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.

Import-export

Pakistan’s total imports of goods in July-Jan were valued at $23.3 billion as opposed to $25 billion in the same seven months of the preceding fiscal year, which shows an annual decrease of 7%.

Pakistan exported goods worth over $12.5 billion in July-Jan as opposed to the exports of goods valuing $14.1 billion in the same period of the last year, reflecting an annual decline of 11.4%. Not only are Pakistan’s exports declining, SBP data shows, their rate of decline is higher than the corresponding decrease in imports.



Workers’ remittances remained $11.2 billion in July-Jan, up 6% 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 half of the import bill and cover the deficit in the trade of goods accounts.

Declining oil prices are going to result in a year-on-year (YoY) 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, February 20^th,  2016.

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