Balance of payments: Current account deficit widens 92%

Experts believe situation will change once CPEC starts giving returns

KARACHI: Pakistan’s current account deficit widened by 92% in the first six months (Jul-Dec) of 2016-17, standing at $3.59 billion compared to $1.87 billion in the same period of previous year, according to data released by the State Bank of Pakistan (SBP) on Wednesday.

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

Increase in the current account deficit means the government faces pressure to address the country’s balance of payments position in the medium- to long-term.

However, some experts believe the deficit is positive in the present situation because it is led by investments instead of consumption.

Owing to the construction phase of the China-Pakistan Economic Corridor (CPEC), Pakistan is witnessing more outflows than inflows. However, the situation will change once the returns of CPEC start coming in, they say.

Pakistan’s current account deficit stood at $3.26 billion in 12 months (Jul-Jun) of 2015-16, which shows that the gap in only six months of the ongoing fiscal year has crossed the entire last year’s level.

As a percentage of gross domestic product (GDP), the current account deficit widened to 2.2% in the first six months of 2016-17 as opposed to 1.3% in the same period of last year.

Pakistan exported goods worth $10.53 billion in Jul-Dec 2016-17 compared to exports valuing $10.78 billion in the comparable period of 2015-16, reflecting a year-on-year decrease of 2.3%.

Total imports of goods in the six months were $21.37 billion as opposed to $20.14 billion in the comparable period of 2015-16, an increase of 6.1%.

Balance of trade in both goods and services at the end of the first six months was recorded at a negative $12.53 billion compared with the deficit of $10.64 billion in the same period of preceding fiscal year.

Worker remittances amounted to $9.46 billion in Jul-Dec 2016-17, down 2.4% from the same period of previous fiscal year, when they totalled $9.69 billion.

Pakistan received remittances amounting to $19.9 billion in 2015-16, up 6.4% from the previous year.

At a time when the country’s exports are on the decline, the slowdown in remittances could be worrying for the country. Remittances make up almost half of the import bill and cover the deficit in trade of goods accounts. Moreover, the country has also been facing low levels of foreign direct investment (FDI).

Published in The Express Tribune, January 19^th, 2017.

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