Current account deficit shows comfort level in July
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.