July-May FY17 revised: SBP changes current account deficit figures

Deficit now stands at $10.64b, widens by 131% year-on-year

Our Correspondent July 07, 2017

KARACHI: Pakistan’s current account deficit position has changed and this time it is not just due to falling exports or rising imports. A revised definition means that the country’s external accounts just underwent a drastic change on Thursday.

According to revised data of the State Bank of Pakistan (SBP), the current account deficit has widened by a massive 131% in the first 11 months (July-May) of the outgoing fiscal year (2016-17), standing at $10.64 billion compared to $4.59 billion in the same period of the previous year. The central bank earlier reported a deficit of $8.93 billion in the first 11 months of fiscal year 2016-17, which was $1.71 billion lower than the new figures.

With the difference between exports and imports being the biggest determinant of the 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.

SBP’s reserves fall 1.42%, amount to $16.1b

The enormous increase in the deficit suggests that the government has been unable to manage its balance of payments position over the 11-month period.

The widening of current account deficit has even exceeded the harshest estimates of experts like Dr Ashfaque Hasan Khan, an Islamabad-based economist, who earlier warned the government that the deficit could go beyond $8 billion by the end of June 2017.

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

Analysts say in the current scenario of falling reserves, the Pakistan rupee’s depreciation and monetary tightening in the next few months cannot be ruled out.

As a percentage of gross domestic product (GDP), the deficit rose to 3.8% in the first 11 months of 2016-17 as opposed to just 1.8% in the same period of previous year.

A dramatic fall, and an equally dramatic rise

Between July-May FY17, Pakistan exported goods worth $19.78 billion compared to exports valuing $20.10 billion in the comparable period of 2015-16, reflecting a year-on-year decrease of 1.5%.

However, total imports were valued at $43.45 billion as opposed to $37.22 billion in the comparable period of 2015-16, up 16.7%.

Balance of trade in both goods and services at the end of first 11 months was negative $26.84 billion compared with a deficit of $20.21 billion in the same period of the previous fiscal year.

Worker remittances amounted to $17.46 billion in Jul-May FY17, down 2.13% from the same period of previous year, when they totalled $17.84 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 another worrying sign for the country.

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 that milestone.

Published in The Express Tribune, July 7th, 2017.

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