Current account deficit inches higher to $98m

Surplus in February offset by bigger-than-expected deficit in previous month.

KARACHI:

Pakistan’s current account has continued to skew unfavorably, having piled up a deficit of $98 million in the period July-Feb of fiscal year 2011. After registering a surplus of $570 million in December, the account of net transfers between Pakistan and other countries has deteriorated, despite a modest surplus of $53 million in February. Official data released by the State Bank of Pakistan (SBP) revealed that January’s deficit, which was earlier reported at $62 million, has been revised to $132 million.

“Even so, the cumulative deficit is not even $100 million so far in the year,” said InvestCap head of research Khurrum Shehzad, highlighting the silver lining around the grey cloud. “Trade balance has held up well and remittances have posted encouraging successive month-on-month gains,” he added. He expressed hope that the relatively tame current account position and the government’s recent moves to generate more taxes will couple up as decisive reasons against another hike in SBP’s monetary policy.

The trade balance posted a deficit of $724 million in February, down slightly from January’s deficit of $794 million. Likewise, the balance of goods and services stood at $916 million, compared with the previous month’s tally of $1.036 billion. Workers’ remittances sent to the country have also increased in February, standing at $845 million, up from $827 million in January.

Rising international fuel prices are being viewed as a potential threat to the country’s external accounts and reserves of foreign currency. For this reason, analysts are keenly interested in developments in the Middle East. However, Shehzad also pointed out, “Rising commodity prices have also helped local exporters.” He highlighted the impressive export growth witnessed by the textile sector in recent weeks.

The analyst also pointed out that consistently rising remittances have played a crucial role in firming up the current account, and cautioned, “A change in this trend may irritate the balance, which has thus far been relatively under wraps.”

Published in The Express Tribune, March 18^th, 2011.