CA deficit

The Pak Banker - - FRONT PAGE -

Ac­cord­ing the State bank's lat­est fig­ures, the coun­try's cur­rent ac­count deficit jumped by 50 per cent in the first eight months of FY18, mak­ing it more dif­fi­cult for the gov­ern­ment to meet the gap as its re­serves con­tinue to fall. The State Bank of Pak­istan re­ported last week that the cur­rent ac­count deficit of the coun­try rose to $10.826 bil­lion dur­ing July-Fe­bru­ary FY18 com­pared to $7.216bn in the same pe­riod. Dur­ing FY17, Pak­istan posted a cur­rent ac­count deficit of $12.2bn as com­pared to $2.6bn in FY16 in­di­cat­ing that the deficit has been ris­ing pos­ing a se­ri­ous threat to the econ­omy. For the month of Fe­bru­ary, how­ever, the trade deficit shrank by 16.55pc month-on-month to $2,687m, from $3,220m in Jan­uary 2018.

With the dif­fer­ence be­tween ex­ports and im­ports be­ing the big­gest de­ter­mi­nant of the cur­rent ac­count im­bal­ance, a deficit or sur­plus re­flects whether a coun­try is a net bor­rower or a net lender with re­spect to the rest of the world. The im­ports of goods and ser­vices cost the coun­try about $42.6bn dur­ing July-Feb FY18 ver­sus its ex­ports of $19.4b. The re­mit­tances be­ing sent by the over­seas Pak­ista­nis showed some im­prove­ment and the ex­ports also in­creased up to 11pc dur­ing the last eight months but the in­creased trade deficit has ham­pered any pos­si­bil­ity to cur­tail the cur­rent ac­count deficit.

The gov­ern­ment is des­per­ately look­ing for an op­tion to re­duce the in­creased deficit but the trade deficit could not be cur­tailed de­spite a 5pc de­val­u­a­tion of lo­cal cur­rency. The cen­tral bank's data re­lease date co­in­cides with a ma­jor fall of 4% of the ru­pee against the US dol­lar. Ear­lier, the gov­ern­ment of Prime Min­is­ter Shahid Khaqan Ab­basi al­lowed the ru­pee to fall by around 5% against the dol­lar in De­cem­ber 2017 in a bid to boost ex­ports. Pak­istan is strug­gling to in­crease its ex­ports by pro­vid­ing cheaper money and a num­ber of in­cen­tives to the ex­porters but the re­sult was not up to the mark. More­over, the rise in ex­ports was mainly due to price hike of goods in the in­ter­na­tional mar­ket while the vol­ume of ex­ports could hardly in­crease dur­ing the eight months 2017-18.

For over three years, the PML-N gov­ern­ment has been a pro­po­nent of a stronger ru­pee and was re­luc­tant to let it lose its value against the dol­lar. Pak­istan was among the very few coun­tries in Asia that fol­lowed this pol­icy, oth­er­wise all im­por­tant economies in Asia let their cur­ren­cies go down to boost their ex­ports. It also slapped ad­di­tional reg­u­la­tory duty on im­ports of over 350 items in Oc­to­ber 2017 to slow down bal­loon­ing im­ports. The larger ob­jec­tive of the mea­sures taken was to con­trol the trade deficit. In­vestors have shown con­cerns about the grow­ing deficit af­ter the coun­try recorded a much higher-than-ex­pected deficit of $12.4 bil­lion (4% of gross do­mes­tic prod­uct - GDP) in the pre­vi­ous fis­cal year ended on June 2017. The deficit in FY16 was just $4.86 bil­lion.

As a per­cent­age of GDP, the deficit rose to 4.8% in the first eight months of FY18 as op­posed to 3.6% in the same pe­riod of pre­vi­ous year. In Jul-Feb FY18, Pak­istan ex­ported goods worth $15.97 bil­lion com­pared with ex­ports valu­ing at $14.23 bil­lion in the cor­re­spond­ing pe­riod of last year, re­flect­ing a year-on-year in­crease of 12.2%. How­ever, im­ports jumped at a faster rate to $35.66 bil­lion, up 17.3% against $30.4 bil­lion last year.

The bal­ance of trade in both goods and ser­vices in the first eight months was neg­a­tive at $23.22 bil­lion, com­pared with $18.93 bil­lion in the same pe­riod of pre­vi­ous year. Work­ers' re­mit­tances amounted to $12.84 bil­lion in Jul-Feb FY18, up 3.5% from the cor­re­spond­ing pe­riod of pre­vi­ous year, when they to­talled $12.41 bil­lion. Re­mit­tances make up 36% of the im­port bill of Pak­istan and mainly cover the deficit in the trade of goods ac­count.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.