11MFY14: Current account deficit rises

Low exports in May a reason behind weak BoP position.

KARACHI:

Pakistan’s current account deficit in the first 11 months of the current fiscal year increased to more than $2.5 billion as opposed to $2.1 billion in July-May of 2012-13, according to data released by the State Bank of Pakistan (SBP) on Thursday.

The current account deficit remained $147 million during May alone. The current account deficit in April was $11 million, SBP data shows.



Shown as a percentage of the gross domestic product (GDP), the current account deficit widened to 1.1% in July-May as opposed to 0.99% in the same period of the last fiscal year.

The country’s balance of payment (BoP) position was weak until a few months back when the foreign exchange reserves held by the central bank had declined to a critical level of $2.8 billion on February 7.

This meant the reserves provided less than one month of import cover, thus posing an imminent threat to the economy. However, SBP-held foreign exchange reserves increased to $8.6 billion by June 13, reflecting an increase of more than 200% over the last four months.

Pakistan exported goods worth $23.1 billion in July-May as opposed to exports totalling $22.8 billion in the comparable 11-month period of 2012-13, reflecting a year-on-year increase of 1.3%. In May alone, however, exports decreased to $2 billion, down 1.5% month-on-month from $2.1 billion recorded in April.

The country’s total imports of goods in May were $3.6 billion as opposed to $3.3 billion in April, which means an increase of almost 8% in one month. For the July-May period, goods’ imports increased to $38 billion, up 3.2% from $36.8 billion in the corresponding 11-month period of 2012-13.



Workers’ remittances remained $1.4 billion in May, up 9.6% from the preceding month when they totalled $1.3 billion. Workers’ remittances in July-May increased to $14.3 billion, registering an increase of 12.3% over the corresponding 11-month period of the preceding fiscal year when they equalled $12.7 billion.

A favourable current account balance in May can partially be attributed to the increased direct investment in Pakistan, which amounted to $611 million last month. In contrast, direct investment in April amounted to $81 million only, which reflects a month-on-month increase of 654.3%. The sudden hike in direct investment is due to the receipt of the spectrum auction proceeds last month.

Pakistan received foreign direct investment (FDI) of $1.3 billion in the first 11 months of 2013-14, which is 2.5% higher than the amount it received in July-May 2012-13.

Published in The Express Tribune, June 20^th, 2014.

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