Current account deficit shrinks 72%

Published: November 20, 2015
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CREATIVE COMMONS

CREATIVE COMMONS

KARACHI: Pakistan’s current account deficit in the first four months of 2015-16 remained $532 million, according to data released by the State Bank of Pakistan (SBP) on Thursday.

The current account deficit shrank 71.9%, or $1,365 million, year on year in July-October, as it amounted to $1.9 billion in the same four-month period of the preceding fiscal year.

The notable improvement in the current account balance in the last four months was mainly because of shrinking trade deficit in both goods and services. It amounted to almost $6.3 billion in Jul-Oct as opposed to $8.4 billion recorded over the comparable period of the last year.

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

As a percentage of the gross domestic product (GDP), the current account deficit decreased from 2.1% in July-Oct 2014 to 0.5% in July-Oct 2015.

The country recorded a current account deficit of $2.28 billion in the last fiscal year, which was significantly smaller than the deficit of $3.13 billion in 2013-14. Analysts believe the encouraging trend in the country’s current account balance in the recent past is a consequence of major inflows under the Coalition Support Fund (CSF), substantial growth in workers’ remittances and a sharp reduction in the oil import bill.

Pakistan’s total imports of goods in July-Oct were valued at $13.1 billion as opposed to $15.5 billion in the same months of the preceding fiscal year, which shows an annual decrease of 15.6%.

Pakistan exported goods worth over $7.1 billion in July-Oct as opposed to the exports of goods valuing over $8 billion in the same four months of 2014, reflecting an annual decline of 10.6%.

Workers’ remittances remained $6.5 billion in July-Oct, up 5.2% from the same months of the last year. Remittances have played a significant role in improving the country’s external sector, as they make up for almost 50% of the country’s import bill and fully cover the deficit in goods and services accounts.

In the last monetary policy statement, the SBP noted that a current account deficit of the size of end-fiscal 2015 “seems manageable” in 2015-16. “This is supported by the expected surplus in the capital and financial account in 2015-16 on the back of planned Euro/Sukuk bonds inflows, official disbursements, and the remaining IMF funding under the EFF programme,” it said, adding that the lower global oil prices have yet to find their bottom.

Declining oil prices are going to result in a year-on-year drop of over 23% in Pakistan’s oil import bill in 2015-16, as per the estimate of the IMF. However, many analysts believe the deficit in the current account is unlikely to change into a surplus by the end of 2015-16 despite a massive drop in international oil prices.

Exports, which are continuously declining, will not be able to sustain the pressure on the current account balance once inflows from the IMF dry up in mid-2016 and Pakistan starts making Paris Club loan repayments, they say.

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