Current account: Deficit widens to $1.58b in first half, SBP data shows

Figures for December reveal marked improvement.

KARACHI:

Pakistan’s current account deficit widened to $1.58 billion in the first six months of fiscal 2014 as opposed to a deficit of $83 million in the corresponding period of fiscal 2013, according to data released by the State Bank of Pakistan (SBP) on Tuesday.

However, December witnessed a current account surplus of $285 million. This was in contrast to a deficit of $572 million in November.

Speaking to The Express Tribune, Standard Chartered Bank Senior Economist Sayem Ali said the current account surplus in December is a positive development for the foreign exchange markets. He added that the improvement has helped bring stability to the rupee-dollar exchange rate in recent weeks.

“Tighter monetary policy and sharp depreciation of the rupee has led to a current account surplus (in December),” Ali noted, adding the current account surplus was primarily led by higher exports and remittances from overseas workers last months.



Pakistan exported goods worth $2.3 billion in December as opposed to exports totalling $1.8 billion in the preceding month, reflecting a month-on-month increase of 27.8%. For the July-December period, however, exports increased to $12.5 billion, up 3.2% compared to the corresponding six-month period in fiscal 2013.

Similarly, workers’ remittances increased to $1.3 billion in December from $1.1 billion in November, which shows a monthly rise of 22.6%. Workers’ remittances in July-December increased to $7.8 billion, registering an increase of 9.4% over the corresponding six-month period in the preceding fiscal year.

“Lower interest payments also supported a lower current account deficit (in July-December),” he observed.

The current account deficit in the last quarter (October-December) was $383 million as opposed to a deficit of $522 million in the corresponding three-months of fiscal 2013.

Ali also expressed concerns over the Balance of Payment (BoP) outlook due to weak foreign exchange reserves held by the SBP, which stood at $3.4 billion on January 10. The reserves cover only one month of exports. They have decreased over 37% since the beginning of the current fiscal year due to loan repayments.

The SBP forecasts that the country will have a current account deficit of $4 billion – or 1.8% of gross domestic product (GDP) − in the current fiscal year as opposed to $2.5 billion (1% of GDP) recorded in the preceding fiscal year. “This indicates that the rupee will remain under pressure in 2014 on a wider current account deficit and weak foreign investment inflows,” Ali said.

Published in The Express Tribune, January 22^nd, 2014.

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