CA deficit

The Pak Banker - - FRONT PAGE -

Ac­cord­ing to the lat­est State Bank fig­ures, Pak­istan's cur­rent ac­count deficit has widened 50% to a record high of $14.03 bil­lion in the first 10 months of the cur­rent fis­cal year 2018. The deficit stood at $9.35 bil­lion in the same pe­riod of the pre­vi­ous fis­cal year. The 10-month cu­mu­la­tive deficit of $14.03 bil­lion is much higher than the com­plete fis­cal year 2017's deficit of $12.62 bil­lion. The cur­rent ac­count deficit in April 2018 alone stood at $1.95 bil­lion, which is 61% higher than $1.21 bil­lion recorded in the prior month of March 2018.

The deficit is also ex­pected to sur­pass the es­ti­mated fig­ure of $16 bil­lion for fis­cal year 2018 after the price of crude oil (the bench­mark Brent crude) surged sharply in the in­ter­na­tional mar­ket to three-and-ahalf-year high of $80 per bar­rel last week from around $50 per bar­rel at the out­set of the cur­rent fis­cal year on July 1, 2017. The deficit in­creases woes of the coun­try's eco­nomic man­agers as a widen­ing cur­rent ac­count takes toll on for­eign ex­change re­serves that have al­ready fallen be­low $11 bil­lion last week. The sit­u­a­tion may even force the gov­ern­ment to go back to the In­ter­na­tional Mone­tary Fund (IMF) for a bailout pack­age.

Pak­istan's econ­omy de­pends heav­ily on im­ported oil and Liq­ue­fied Natural Gas (LNG) to fuel its in­dus­tries as well as ful­fil de­mands of do­mes­tic con­sumers. The coun­try meets al­most three-fourths of its en­ergy needs through im­ports, which con­trib­utes close to one-third in the over­all im­port bill of the coun­try. The gov­ern­ment has also de­val­ued the ru­pee by around 9.5% in two rounds (5% in December 2017 and 4.5% in March 2018) in a bid to nar­row down the deficit. The mea­sure has re­sulted in in­creas­ing ex­ports, but largely failed to slow down im­ports. The trade deficit in­creased 20% to $25 bil­lion in 10 months com­pared to $20.77 bil­lion in the same pe­riod last year. Ac­cord­ingly, im­ports in­creased 17% to $45.56 bil­lion from $38.91 bil­lion and ex­ports en­hanced 13% to $20.55 bil­lion from $18.14 bil­lion.

The trade deficit (in­clud­ing of ser­vices) rose to $29.21 bil­lion from $24.09 bil­lion. On the other hand, an uptick in work­ers' re­mit­tances sent home by overseas Pak­ista­nis slightly con­trolled the widen­ing deficit. Re­mit­tances rose 4% to $16.25 bil­lion in the 10-month pe­riod com­pared to $15.64 bil­lion in the cor­re­spond­ing pe­riod of the pre­vi­ous year. FDI in­creased 2.4% in July-April, amount­ing to $2.24 bil­lion from $2.18 bil­lion in the same 10-month pe­riod of the pre­vi­ous year. 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. It may be added here that the im­ports of goods and ser­vices cost the coun­try about $42.6bn dur­ing July-Feb FY18 ver­sus its ex­ports of $19.4b.

The SBP has man­aged to main­tain the ex­change rate so far. For­eign ex­change re­serves of com­mer­cial banks have gone up to $6 bil­lion, which would help main­tain the in­flow and out­flow of dol­lars. Im­porters buy dol­lars from banks for their im­ports. Even the oil bill is paid through banks. To con­trol the gap in im­ports and ex­ports, the gov­ern­ment re­cently en­hanced reg­u­la­tory du­ties by up to 350% on 356 es­sen­tial and lux­ury goods. Ex­perts are of the opin­ion that stricter im­port con­trol mea­sures are needed to re­duce the widen­ing CA deficit.

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