July-August: Current account deficit increases to $1.32b

SBP data reveals deficit has increased 92% year-on-year, balance of payments position worsens

KARACHI: Pakistan’s current account deficit has nearly doubled in the first two months (Jul-Aug) of 2016-17, increasing to $1.32 billion on a year-on-year basis, according to data released by the State Bank of Pakistan (SBP) on Wednesday.

With the difference of exports and imports being the biggest determinant of the current account balance, a deficit/surplus reflects whether a country is a net borrower/lender with respect to the rest of the world.

The 92% increase means the deficit increased from $686 million to $1.32 billion, raising further questions on the country’s balance of payments position in the medium- to long-term.



As a percentage of gross domestic product (GDP), the current account deficit widened to -2.5% in July-August as opposed to -1.4% in the same period of the last fiscal year.

Pakistan exported goods worth $3.22 billion in July-August as opposed to exports totalling $3.49 billion in the comparable months of fiscal year 2015-16, reflecting a year-on-year decrease of 7.7%. The value of goods exported in August 2016 was recorded at $1.72 billion, up 14.6% compared to $1.50 in July 2016.

Pakistan’s total imports of goods in July-August were $6.97 billion as opposed to $6.80 billion in the comparable period of 2015-16, which means an annual increase of 2.5%. On a month-on-month basis, the value of goods imported increased by 26%, as Pakistan imported goods valuing $3.88 billion in August.

Balance of trade in both goods and services at the end of the first two months of 2016-17 clocked up at -$4.37 billion as opposed to the deficit of $3.69 billion recorded in the same period of the preceding fiscal year.

Workers’ remittances remained $3.09 billion in July-August, down 3.2% from the same months of the last fiscal year when they totalled $3.19 billion. However, workers’ remittances in August 2016 increased to $1.76 billion, up 32% compared to $1.33 billion in July 2016.

Pakistan heavily depends on remittances because they play a major role in stabilising the country’s external sector. Remittances make up for almost half of the import bill and cover the deficit in the trade of goods accounts.

Pakistan received remittances amounting to $19.9 billion in 2015-16, up 6.4% from the previous fiscal year. At a time when the country’s exports are on a decline, the current slowdown in remittances has become critical for the country. Moreover, the country has been also facing low levels of foreign direct investment.

Analysts say declining exports and slowdown in remittances are going to create major problems for the government.

The government, which announced the Strategic Trade Policy Framework (STPF) 2015-18 in March this year to take exports to $35 billion by June 2018, now says that it is difficult to achieve the target.

Commerce Minister Khurram Dastgir says that he is not optimistic that the country would be able to achieve exports of $35 billion by 2018 due to the global economic slowdown.

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

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