Worries increase as current account gap widens 135%

Debt servicing, oil price recovery, weak exports propel deficit


Farhan Zaheer April 20, 2017
PHOTO: REUTERS

KARACHI: Pakistan’s current account deficit widened 135% in the first nine months (July-March) of the ongoing fiscal year, standing at $6.48 billion compared to $2.76 billion in the same period of previous year, according to data released by the State Bank of Pakistan (SBP) on Wednesday.

‘Current account deficit could top $7b till end of FY17’

The monumental increase in the deficit suggests that the government has been unable to manage the balance of payments position over the period.

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

The widening of the current account deficit should be a big concern for the government, said Dr Ashfaque Hasan Khan, Dean School of Social Sciences and Humanities of National University of Science and Technology, while talking to The Express Tribune recently.

He predicted that the current account gap would easily cross $7 billion by the end of fiscal year in June 2017.

Analysts say the deficit is growing due to heavy debt servicing, recovering oil prices and weak exports.

However, according to some experts, there are many positives in the present situation as Pakistan’s economy is being led by investment instead of consumption.

The country is experiencing more outflows than inflows in the wake of ongoing construction phase of the China-Pakistan Economic Corridor (CPEC), which needs heavy and sophisticated machinery for swift work.

Some experts believe the situation is expected to change once CPEC starts producing positive returns for the economy. Pakistan’s current account deficit in fiscal year 2015-16 stood at $3.97 billion. As a percentage of gross domestic product (GDP), the deficit rose to 2.6% in the first nine months of 2016-17 as opposed to 1.1% in the same period of previous year.

In Jul-Mar FY17, Pakistan exported goods worth $16.1 billion compared to exports valuing $16.3 billion in the comparable period of 2015-16, reflecting a year-on-year decrease of 1.2%.

However, total imports were valued at $33.8 billion as opposed to $29.6 billion in the comparable period of 2015-16, a significant increase of 14%.

Balance of trade in both goods and services at the end of first nine months was recorded at negative $19.7 billion compared with the deficit of $15.4 billion in the same period of previous fiscal year.

Worker remittances amounted to $14.1 billion in Jul-Mar of 2016-17, down 2% from the same period of previous year, when they totalled $14.4 billion.

Remittances make up almost half of the import bill of Pakistan and cover the deficit in trade of goods account. Some experts believe that the slowdown in remittances is a worrying sign for the country because they are under pressure due to the global economic slowdown.

Pakistan’s trade deficit reaches record high

Moreover, Pakistan has also been facing low levels of foreign direct investment (FDI) in recent years.

According to the Board of Investment, Pakistan received a record high FDI of $5.4 billion in fiscal year 2008, but since then the country has been struggling to touch even half of the milestone.

Published in The Express Tribune, April 19th, 2017.

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COMMENTS (2)

Raw Is War | 4 years ago | Reply Gwadar port has no meaning to China, as far as trade is concerned. Their manufacturing base is mostly on eastern side of China, well covered with major ports. No trader in his right mind would transport his goods thousands of kilometres to Gwader and then load it on ships for further journey. China wants this port as a military base. They have hoodwinked Pakistan and they will walk off with the port- as Pakistan will not be able to repay the loans. They want to control the energy lanes of the world. 100% of oil supplies to India, Japan, Korea and all of east Asia uses these lanes. Gwadar is the best place to do it. And Pakistan has become their useful Idiots.
Khalil Anwer Hassan | 4 years ago | Reply My question to those experts, who say that it is a good sign that the Economy is being led by Investments and not Consumption, is then why are Exports getting reduced? Unless Domestic Consumption of Exportable Goods increases, it shouldn't be so. The only other reason would be that the very production of Exportable Goods has come down. That being so, it is a more alarming situation than reduction due to increased Domestic Consumption.
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