Cur­rent ac­count shows sta­bil­ity

The Pak Banker - - FRONT PAGE - Muham­mad Yasir

Pak­istan's cur­rent ac­count showed a sus­tain­able pe­riod in the first eight months of fi­nan­cial year 2015-16 with $88 mil­lion lower than the pre­vi­ous year num­bers in the sim­i­lar pe­riod, State Bank of Pak­istan (SBP) sta­tis­tics said. Ac­cord­ing to the cen­tral bank, the bal­ance of pay­ment seems bal­anced to stand at $1.859 bil­lion dur­ing the pe­riod of Jul to Feb as com­pared with $1.945 bil­lion re­ported in the same pe­riod of last fi­nan­cial year.

The sta­bil­ity in the cur­rent ac­count re­flected in the month Fe­bru­ary which showed a sur­plus of $157 mil­lion due to con­stant de­cline in the im­port bill in tan­dem with lower oil and com­modi­ties prices in the global mar­ket.

Ac­cord­ingly, the trade deficit in the pe­riod of eight months stands at $11.909 bil­lion due to im­ports ex­penses which fell to $26.3 bil­lion which is lesser than of $27.9 bil­lion im­ports in the same pe­riod of last year.

On the other hand, ser­vice deficit in­creased marginally by $10 mil­lion to stand at $1.463 bil­lion in Jul-Feb FY16 as against of $1.453 bil­lion wit­nessed in Jul-Feb of FY15.

The in­flows of re­mit­tances con­tin­ued to show sup­port to cur­rent ac­count which num­bers are higher than of $728 mil­lion from this year to pre­vi­ous year stand­ing at $ 12.715 bil­lion in JulFeb. On the other hand, the cap­i­tal ac­count of the coun­try showed an de­crease of 11 per­cent in the said pe­riod recorded at $253 mil­lion as per cen­tral bank data. Be­sides, the fi­nan­cial ac­count grew 6 per­cent to stand at $2.87 bil­lion in the pe­riod of eight months of cur­rent fi­nan­cial year from $2.80 bil­lion recorded same pe­riod of last year.

In the re­cently is­sued min­utes of Mon­e­tary Pol­icy, the cen­tral bank ex­plained the phe­nom­e­non of cur­rent ac­count as say­ing that the bal­ance of pay­ments po­si­tion has rel­a­tively strength­ened as the cur­rent ac­count deficit was recorded at $1.3 bil­lion for Jul?Dec FY16, al­most half of the $2.5 bil­lion deficit seen in the same pe­riod of the pre­vi­ous year.

This is largely a re­flec­tion of the fall­ing global com­mod­ity prices, es­pe­cially oil, which has more than off­set the de­cline in ex­ports. Within im­ports, some of the ben­e­fits from the lower oil price are off­set by higher non-oil im­ports, es­pe­cially the im­port of ma­chin­ery, which is con­sis­tent with the in­creased eco­nomic ac­tiv­ity. While the cur­rent trend in non-oil im­ports is ex­pected to con­tinue on the back of in­vest­ment in en­ergy, this is ex­pected to be out­weighed by lower oil im­port pay­ments.

Be­sides the weak global de­mand and sub­stan­tial de­pre­ci­a­tion of cur­ren­cies of the trad­ing part­ners against the US dol­lar, higher unit value of Pak­istan's ex­ports vis-a-vis ex­port prices of re­gional com­peti­tors is the other ma­jor fac­tor con­tribut­ing to the de­cline in ex­ports. An­other fac­tor help­ing to nar­row down the cur­rent ac­count deficit is work­ers' re­mit­tances, which con­tin­ued to in­crease al­beit at a slower pace. The con­tin­ued de­cline in in­ter­na­tional oil prices and re­duced fis­cal space in Gulf economies, how­ever, may have im­pli­ca­tions for re­mit­tances go­ing for­ward. Nev­er­the­less, the over­all ex­ter­nal cur­rent ac­count deficit in FY16 is ex­pected to re­main close to 1.0 per­cent of GDP.

The im­prove­ment in cap­i­tal and fi­nan­cial ac­counts con­tin­ued to be led by higher of­fi­cial in­flows. Some im­prove­ment in For­eign Di­rect In­vest­ment was over­shad­owed by the out­flows from Port­fo­lio In­vest­ment. Rel­a­tive un­rest in fi­nan­cial mar­kets of the emerg­ing economies fol­low­ing de­val­u­a­tion of the Chi­nese cur­rency and an­tic­i­pa­tion of a pos­si­ble Fed­eral Funds Rate hike in the early part of the fis­cal year were the key fac­tors be­hind port­fo­lio out­flows.

Th­ese de­vel­op­ments also in­flu­enced sen­ti­ments in the for­eign ex­change mar­ket which were calmed by the strong fun­da­men­tals, es­pe­cially the sus­tained in­crease in coun­try's for­eign ex­change re­serves, the SBP com­mented.

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