Current account deficit widens 50% in July-February

Amounts to $10.83b; month-on-month gap reduces 26%

KARACHI: Pakistan’s current account deficit shrank 26% on a month-on-month basis to $1.24 billion in February 2018, compared to $1.67 billion in January 2018, according to data released by the State Bank of Pakistan (SBP) on Tuesday.

However, in the first eight months (Jul-Feb) of the fiscal year 2017-18 (FY18), the country’s current account deficit widened by 50% to stand at $10.83 billion, compared with $7.22 billion in the same period of previous year.

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



The central bank’s data release date coincides with a major fall of 4% of the rupee against the US dollar on Tuesday. Earlier, the government of Prime Minister Shahid Khaqan Abbasi allowed the rupee to fall by around 5% against the dollar in December 2017 in a bid to boost exports.



For over three years, the PML-N government has been a proponent of a stronger rupee and was reluctant to let it lose its value against the dollar. Pakistan was among the very few countries in Asia that followed this policy otherwise, all important economies in Asia let their currencies go to boost their exports.

It also slapped additional regulatory duty on imports of over 350 items in October 2017 to slow down ballooning imports. The larger objective of the measures taken was to control the trade deficit.

Investors have shown concerns about the growing deficit after the country recorded a much higher-than-expected deficit of $12.4 billion (4% of gross domestic product - GDP) in the previous fiscal year ended on June 2017. The deficit in FY16 was just $4.86 billion.

As a percentage of GDP, the deficit rose to 4.8% in the first eight months of FY18 as opposed to 3.6% in the same period of previous year.

In Jul-Feb FY18, Pakistan exported goods worth $15.97 billion compared with exports valuing at $14.23 billion in the corresponding period of last year, reflecting a year-on-year increase of 12.2%.



However, imports jumped at a faster rate to $35.66 billion, up 17.3% against $30.4 billion last year. The balance of trade in both goods and services in the first eight months was negative at $23.22 billion, compared with $18.93 billion in the same period of previous year.

Workers’ remittances amounted to $12.84 billion in Jul-Feb FY18, up 3.5% from the corresponding period of previous year, when they totalled $12.41 billion. Remittances make up 36% of the import bill of Pakistan and mainly cover the deficit in the trade of goods account.

Pakistan is also facing low levels of foreign direct investment (FDI) in recent years. In the fiscal year ended June 30, 2017, FDI increased just 5% to $2.41 billion compared to $2.30 billion in the previous year.

Published in The Express Tribune, March 21^st, 2018.

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