Dismal State: Pakistan’s current account deficit widens to $1.2b
Rupee under pressure due to depleting foreign reserves .
IMF had projected the current account deficit for fiscal 2014 at $1.6 billion in its September report. ILLUSTRATION: MUNIRA ABBAS
KARACHI:
Pakistan’s current account deficit as opposed to a surplus of $439 million in the corresponding three-month period of last year, widened to $1.2 billion in the first quarter of fiscal 2014 (July-September), according to data released by the State Bank of Pakistan on Wednesday.
The data shows that the current account deficit in September alone was $608 million, up 7% compared to $569 million in August.
Talking to The Express Tribune, Standard Chartered Bank Senior Economist, Sayem Ali said that the cause of the widening current account deficit is increasing imports although a considerable pick-up was recorded in exports and remittances over the same period.
Compared to the corresponding period last year, Pakistan’s exports of goods amounted to $6.2 billion, up 1.3% in the first quarter of fiscal 2014. In contrast, Pakistan’s imports of goods increased 8.9% to $10.6 billion over the same period. “This is driven primarily by higher oil prices and rising energy demand in peak summer months that led to an inflated import bill,” said Ali.
The year-on-year increase in workers’ remittances was 9.1%, which remained $3.9 billion in July-September. The International Monetary Fund (IMF) had projected the current account deficit for fiscal 2014 at $1.6 billion in its September report, but the first-quarter figure indicates that the current account deficit will be significantly higher, Ali noted.
Although the government sought IMF assistance to forestall a balance-of-payments crisis, a widening current account deficit and large debt repayments have led to a sharp drawdown of the State Bank’s foreign exchange reserves.
“Besides this sharp decline, markets are concerned about the growing risk of rising global oil prices and Pakistan’s large external debt repayments on the horizon,” Ali added, saying that the rupee is under pressure due to depleting foreign exchange reserves.
Even after the release of the first tranche of the IMF loan, the SBP’s foreign exchange reserves remain weak at $3.9 billion as on October 10. “This is barely enough to cover one month of import payments,” he said, noting that it is the lowest level of reserves since the 2008 balance-of-payments crisis.
As on October 23, the rupee has declined 11% to Rs106.4 a dollar year-to-date. Ali said that the delay in the release of the next IMF tranche due in December will have serious implications for the balance of payments and the overall rupee outlook.
Talking to The Express Tribune, Global Securities research analyst Umair Naseer said the receipt of the Coalition Support Fund (CSF) of $322 million and loan disbursements under IMF’s EFF programme are expected to support the declining foreign exchange reserves of Pakistan.
“The United States has also promised further payments under CSF ($1.6 billion) in fiscal 2014, which can bring stability on the external front,” he said, adding that the expected inflows would remain key to external account stability, as Pakistan is scheduled to repay $2 billion to the IMF in the last three quarters of fiscal 2014 (November 2013-June 2014).
Pakistan has repaid approximately $900 million during the first quarter of fiscal 2014 against $417 million in the same period last year.
Published in The Express Tribune, October 24th, 2013.
Pakistan’s current account deficit as opposed to a surplus of $439 million in the corresponding three-month period of last year, widened to $1.2 billion in the first quarter of fiscal 2014 (July-September), according to data released by the State Bank of Pakistan on Wednesday.
The data shows that the current account deficit in September alone was $608 million, up 7% compared to $569 million in August.
Talking to The Express Tribune, Standard Chartered Bank Senior Economist, Sayem Ali said that the cause of the widening current account deficit is increasing imports although a considerable pick-up was recorded in exports and remittances over the same period.
Compared to the corresponding period last year, Pakistan’s exports of goods amounted to $6.2 billion, up 1.3% in the first quarter of fiscal 2014. In contrast, Pakistan’s imports of goods increased 8.9% to $10.6 billion over the same period. “This is driven primarily by higher oil prices and rising energy demand in peak summer months that led to an inflated import bill,” said Ali.
The year-on-year increase in workers’ remittances was 9.1%, which remained $3.9 billion in July-September. The International Monetary Fund (IMF) had projected the current account deficit for fiscal 2014 at $1.6 billion in its September report, but the first-quarter figure indicates that the current account deficit will be significantly higher, Ali noted.
Although the government sought IMF assistance to forestall a balance-of-payments crisis, a widening current account deficit and large debt repayments have led to a sharp drawdown of the State Bank’s foreign exchange reserves.
“Besides this sharp decline, markets are concerned about the growing risk of rising global oil prices and Pakistan’s large external debt repayments on the horizon,” Ali added, saying that the rupee is under pressure due to depleting foreign exchange reserves.
Even after the release of the first tranche of the IMF loan, the SBP’s foreign exchange reserves remain weak at $3.9 billion as on October 10. “This is barely enough to cover one month of import payments,” he said, noting that it is the lowest level of reserves since the 2008 balance-of-payments crisis.
As on October 23, the rupee has declined 11% to Rs106.4 a dollar year-to-date. Ali said that the delay in the release of the next IMF tranche due in December will have serious implications for the balance of payments and the overall rupee outlook.
Talking to The Express Tribune, Global Securities research analyst Umair Naseer said the receipt of the Coalition Support Fund (CSF) of $322 million and loan disbursements under IMF’s EFF programme are expected to support the declining foreign exchange reserves of Pakistan.
“The United States has also promised further payments under CSF ($1.6 billion) in fiscal 2014, which can bring stability on the external front,” he said, adding that the expected inflows would remain key to external account stability, as Pakistan is scheduled to repay $2 billion to the IMF in the last three quarters of fiscal 2014 (November 2013-June 2014).
Pakistan has repaid approximately $900 million during the first quarter of fiscal 2014 against $417 million in the same period last year.
Published in The Express Tribune, October 24th, 2013.