Current account shows stability
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.