Current account deficit widens 102%, goes up to $2.6b

Pakistan posted higher-than-expected deficit of $12.1b in FY17

KARACHI: Pakistan’ current account deficit has widened by 102% in the first two months (Jul-Aug) of fiscal year 2017-18 (FY18), to stand at $2.6 billion compared to $1.29 billion in the same period of the previous fiscal year, according to the State Bank of Pakistan (SBP) data released on Tuesday.

Pakistan already posted a much higher-than-expected deficit of $12.1 billion (4% of gross domestic product - GDP) in the previous fiscal year ended June 30, 2017.



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.

The enormous increase in deficit suggests that the government has been unable to manage its balance of payments position over the medium and long run.

Analysts say some of the measures the government could take immediately include rupee devaluation, levy of regulatory duty on non-essential imports, export promotion, floating dollar bonds and bilateral borrowing.



In the current scenario of falling foreign currency reserves, the government may go for monetary tightening in the next few months.

As a percentage of GDP, the deficit rose to 4.6% in the first two months of FY18 as opposed to just 2.5% in the same period of the previous year.

In the first two months of FY18, Pakistan exported goods worth $3.93 billion compared to exports valuing $3.34 billion in the same period of last year, reflecting a reasonable year-on-year increase of 18%.

However, imports jumped much faster to $8.98 billion as opposed to $7.02 billion in the corresponding period of last year, up 28%. Balance of trade in both goods and services in the first two months of FY18 was negative $6.03 billion compared with a deficit of $4.35 billion in the same period of previous year.

Worker remittances amounted to $3.5 billion in the first two months of fiscal year 2018, up 13.2% from the same period of previous year, when they totalled $3.09 billion.

Remittances make up almost half of the import bill of Pakistan and cover the deficit in the trade of goods account.



Pakistan is also facing low levels of foreign direct investment (FDI) in recent years.

In fiscal year ended on June 30 2017, FDI increased just 5% to $2.41 billion compared to $2.30 billion in the previous year.

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, September 20^th, 2017.

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