Current account deficit swells up to $2.5b

Falling exports are offsetting decrease in value of oil imports

KARACHI: Pakistan’s current account deficit amounted to almost $2.5 billion in July-May, according to data released by the State Bank of Pakistan (SBP) on Tuesday.

The current account deficit expanded 1.2%, or $29 million, year-on-year in the first 11 months of the fiscal year. It amounted to over $2.4 billion in the same period of the preceding fiscal 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.



Although the year-on-year expansion in the current account deficit seems nominal, analysts believe Pakistan should ideally have turned it into a surplus in the wake of record-low oil prices for the most part of 2015-16. However, SBP data shows falling exports have largely offset the gains from lower oil import bill, resulting in the country still struggling to achieve a surplus in its current account balance.

The country’s current account balance was in surplus for April ($23 million), but the last month saw the deficit ballooned to almost $800 million owing to a one-fourth increase in imports of goods in May.

As a percentage of the gross domestic product (GDP), the current account deficit remained 1% in 11 months of 2015-16. The deficit recorded no change on a year-on-year basis, which shows Pakistan has largely missed the opportunity to curb current account deficit despite a massive drop in global oil prices.

Balance of payment

Pakistan’s total imports of goods in Jul-May were valued at $36.5 billion as opposed to $37.7 billion in the same 11 months of the preceding fiscal year, which shows an annual decrease of 3.1%.

Pakistan exported goods worth $20.1 billion in Jul-May as opposed to the exports of goods valuing almost $22 billion in the same period of the last year, reflecting an annual decline of 8.4%. Not only Pakistan’s exports are declining, SBP data shows their rate of decline is higher than the corresponding decrease in imports.



Workers’ remittances remained $17.8 billion in July-May, up 5.6% from the same 11 months of the last fiscal year. Remittances have played a significant role in stabilising 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.

DESIGN: NABEEL AHMED

 

According to the Economist Intelligence Unit (EIU), an international forecasting and advisory service, Pakistan’s merchandise trade deficit is expected to widen over the coming years as a result of greater demand for imported investment and consumer goods.

The import bill will increase further, as oil prices recover post-2016, the EIU said in a report in March. It added that exporters in Pakistan will struggle going forward owing to persistent power shortages and poor basic infrastructure.

Published in The Express Tribune, June 22^nd, 2016.

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