2014-15: Current account deficit shrinks by $850m

CSF, worker remittances and reduction in oil import bill labelled as reasons

Kazim Alam July 23, 2015
CSF, worker remittances and reduction in oil import bill labelled as reasons. STOCK IMAGE

KARACHI: Pakistan’s current account deficit in 2014-15 remained $2.28 billion, according to data released by the State Bank of Pakistan (SBP) on Wednesday.

The current account deficit shrank by $850 million in July-June compared to the preceding fiscal year when it amounted to $3.13 billion. The notable improvement in current account in the last fiscal year was recorded primarily during the third quarter (Jan-Mar) when it posted a substantial surplus of $730 million.

According to SBP analysts, the surplus in the current account in Jan-Mar was a result of three factors: an inflow of $717 million in February under the Coalition Support Fund (CSF), a year-on-year increase of 15% in workers’ remittances and a sharp reduction in the oil import bill, which reduced the trade deficit by 19.2% in the quarter on a year-on-year basis.

A deficit or surplus reflects whether a country is a net borrower or lender of capital with respect to the rest of the world.

Current account breakdown

As a percentage of the gross domestic product (GDP), the current account deficit decreased from 1.3% in 2013-14 to 0.8% in 2014-15.

In the last quarter of 2014-15 alone, the current account balance remained in deficit: it amounted to -$593 million in Apr-June as opposed to a current account surplus of $730 million in the preceding quarter.

The notable change in the current account balance over the quarter is partly because of a significant increase in the value of goods imported as well as a sharp decrease in the exports of services.

On a quarter-on-quarter basis, the value of goods imported increased to $10.1 billion in Apr-Jun. From imports of goods valuing almost $9 billion in Jan-Mar, the quarter-on-quarter increase remained approximately 13% in Apr-Jun.

Pakistan’s total imports of goods in 2014-15 were $41.1 billion as opposed to $41.6 billion in the preceding fiscal year, which means an annual decrease of 1.2%.

Pakistan exported goods worth over $24.1 billion in 2014-15 as opposed to the exports of goods valuing over $25 billion in the year before, reflecting annual decline of 3.7%.

The balance of trade in both goods and services at the end of 2014-15 clocked up at -$19.5 billion as opposed to the deficit of $19.2 billion recorded in the preceding fiscal year.

Various sub-sectors

Workers’ remittances remained $18.4 billion in the last fiscal year, up 16.5% from a year ago when they totalled $15.8 billion, according to SBP data. This means the country surpassed its targeted annual growth rate of 5.7% in 2014-15.

SBP data shows remittances make up for roughly 45% of the country’s import bill and 94.3% of deficit in the goods and services accounts.

According to a recent SBP publication, Pakistan’s overall balance of payment performance could have been “much more promising” in the absence of a few pull-down factors. The central bank believes the decline in the overall imports is “much smaller” than what the decline in oil prices had envisaged.

Moreover, non-oil imports have surged at a much faster rate, the SBP observed, reflecting the country’s growing dependence on imported raw materials and capital goods.

“To a large extent, therefore, Pakistan’s structural deficit is still persisting. To reduce this, measures should be taken against the inflow of unnecessary/unproductive imports, like packaged food, mobile phones and other consumer goods,” the SBP said, adding Pakistan is not likely to face any “serious” balance of payment concern in the near future.

Published in The Express Tribune, July 23rd,  2015.

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