Current-account deficit hits 16-month high
The current account produced a deficit of $2.5 billion in February, a 25 percent jump from the same month in 2017. The deficit in the first two months of this year reached $5.3 billion, compared with $4.2 million in the same period last year. It is difficult to make a good assessment of either the February deficit or the combined shortfall from just two months of results. It is always better to look at the data covering the most amount of time, or the annualized figure.
According to the statement made by the Central Bank on April 11, the 12-month current-account deficit rose to $33.7 billion in February. This is the highest level the deficit has reached since October 2015. In other words, the annualized deficit may have dipped at points during the last 16 months but has begun to increase again.
The deficit may not be cause for concern yet, and this is fair up to a point, especially when we consider that the government’s 2017 target is $32 billion. We see that the figure is not too far off. We now need to look ahead to consider whether the trend will continue to rise.
And it appears that it will. There are two reasons for this. The first is our foreign-trade deficit is increasing and will continue to do so, especially as oil prices rise. The forecast for the balance of payments was based on a barrel of oil costing $50.70; it’s now about $55 or $56 a barrel.
The second major negative is the decline in tourism revenue, which fell 15 percent in the first two months of the year. Tourism expenditures are also falling, showing a 9 percent decline in the first two months of 2017. While tourism revenue was $18.7 billion in 2016, we forecast that it would rise to $23.5 billion this year, or an increase of 26 percent. But if the decline in the first two months becomes the trend for the rest of 2017, pushing revenue 15 percent lower to $16 billion, that forecast of $23.5 billion will come up $7.5 billion short. How will we make up this shortfall, will we even be able to?
Let me repeat: The annualized $33.7 billion current-account deficit on its own may not be significant. What matters now are whether factors that widen, narrow or stabilize this deficit prevail.
Given the relatively high current account deficit in the months of March, June and December last year, the base effect in those months may pull the annual rate lower. But these downward movements will be temporary, and the general trend in the current-account deficit will be upward.
To produce this deficit, we will need foreign currency, naturally. That forex will have to come from overseas, or the Central Bank will be forced to tap its reserves.