Cur­rent ac­count deficit shows com­fort level in July

The Pak Banker - - COMPANIES/BOSS - Muham­mad Yasir

Pak­istan's cur­rent ac­count deficit shows com­fort level in the start­ing month of fi­nan­cial year 2015-16 stand­ing at $159 mil­lion which is less than five times of pre­vi­ous year's $820 mil­lion, State Bank of Pak­istan sta­tis­tics said, due de­cline in trade deficit and sta­ble in­flows of re­mit­tances.

The goods trade deficit of July was seen a de­cline of 15 per­cent or $318 mil­lion less than the pre­vi­ous year's num­ber stand­ing at $1.79 bil­lion. The ex­ports of the coun­try re­mained less half of the im­port bill stand­ing $1.76 bil­lion as against of $3.54 bil­lion.

The ser­vice trade was seen in sur­plus with $90 mil­lion as com­pared to the deficit of $383 mil­lion posted last year in July. The trade deficit was con­trolled due to in­creas­ing val­ues of ex­ports mainly on the back of de­pre­ci­a­tion of Ru­pees against Dol­lar though the im­pact of low­er­ing com­modi­ties and petroleum prices to main­tain im­port bill was dom­i­nated well in the over­all bal­ance of trade po­si­tion.

On the other hand, re­mit­tances fig­ures showed flat growth with $ 1.66 bil­lion in the month of July FY16 as com­pared with $ 1.64 bil­lion re­ceived dur­ing the same pe­riod in the pre­ced­ing year.

In the last fi­nan­cial year, the bal­ance of pay­ment set­tled with a deficit of $2.28 bil­lion due to trade deficit which re­mained a chal­leng­ing is­sue for the econ­omy due to dis­mal per­for­mance of ex­ports sec­tor.

State Bank of Pak­istan (SBP) sta­tis­tics said a deficit of $534 mil­lion dur­ing April to June 2015.

The over­all Bal­ance of Pay­ment per­for­mance could have been much more promis­ing but if the ben­e­fit of oil prices de­cline in in­ter­na­tional mar­ket could off­set over­all im­ports bill of oil which was seen a lit­tle im­pact how­ever non-oil im­ports have surged at a much faster rate.

Se­condly, ex­ports have de­clined de­spite of the fact the re­ces­sion in the EU is not di­rectly hurt­ing Pak­istan's ex­ports - as our prod­ucts are cut­ting into com­peti­tors' shares, the in­di­rect im­pact is strong.

SBP in its re­cently pointed out that Pak­istan's struc­tural deficit is still per­sist- ing sug­gested that mea­sures should be taken to re­duce it against the in­flow of un­nec­es­sary/ un­pro­duc­tive im­ports (e.g., pack­aged food; mo­bile phones; other con­sumer goods) into the coun­try, whereas im­port sub­sti­tu­tion may also be thought along to re­duce im­port de­pen­dence on some of the in­dus­trial in­puts (like lowtech ma­chin­ery and chem­i­cals).

For ex­port ex­pan­sion, it has be­come crit­i­cal to de­sign an in­dus­trial pol­icy that clearly spells out the coun­try's strate­gic ob­jec­tives.

Ar­eas that need spe­cial at­ten­tion in­clude the coun­try's re­source base; pro­duc­tiv­ity and ef­fi­ciency; energy sup­plies; and ef­fec­tive sup­ply chains. To achieve this, Pak­istan should cap­i­tal­ize on the avail­able forex re­serves com­fort it has earned over the last year.

Pak­istan is not likely to face any se­ri­ous Bal­ance of Pay­ment con­cern in the near fu­ture, how­ever, what is im­por­tant to re­al­ize is that the longer the gov­ern­ment takes to fix the sup­ply-side con­straints, more dif­fi­cult it would be­come to nar­row the fu­ture forex re­serves gap - the bur­den of ex­ter­nal debt ser­vic­ing is in­creas­ing in the in­terim pe­riod.

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