KARACHI: Pakistan’s current account deficit widened by 63% in the first four months (Jul-Oct) of 2016-17, increasing to $1.76 billion from $1.08 billion in the same period last year, according to data released by the State Bank of Pakistan (SBP) on Friday.
With the difference of exports and imports being the biggest determinant of the current account balance, a deficit/surplus reflects whether a country is a net borrower/lender with respect to the rest of the world.
The 63% increase in deficit means the government faces pressure to address the country’s balance of payments position in the medium- to long-term. However, experts believe this current account deficit is positive for the country in the present situation.
Current account deficit increases to $1.32b
“This is a positive development for Pakistan because this current account deficit is led by investments instead of consumption,” Invest and Finance Securities CEO Muzammil Aslam told The Express Tribune.
Since China-Pakistan Economic Corridor (CPEC) is in construction phase, Pakistan is witnessing more outflows than inflows. Investments are being made in the country due to which we are witnessing current account deficit in short term, but the situation will change once the returns of CPEC start coming in, he added.
As a percentage of gross domestic product (GDP), the current account deficit widened to 1.7% in the first four months of 2016-17 as opposed to 1.1% in the same period of the last fiscal year.
Pakistan exported goods worth $6.86 billion in the first four months of 2016-17 as opposed to exports totalling $7.09 billion in the comparable period of fiscal year 2015-16, reflecting a year-on-year decrease of 3.2%.
The value of goods exported in October 2016 was recorded at $1.82 billion, up 8% compared with $1.69 billion in September 2016.
Pakistan’s total imports of goods in the first four months of 2016-17 were $13.56 billion as opposed to $13.28 billion in the comparable period of 2015-16, which means an annual increase of 2%. On a month-on-month basis, the value of goods imported rose by 3%, as Pakistan imported goods valuing $3.34 billion in October 2016 compared with $3.24 billion in September 2016.
8MFY2015-16: Current account deficit shrinks to $1.86b
Balance of trade in both goods and services at the end of the first four months clocked up at -$7.79 billion compared with the deficit of $6.9 billion recorded in the same period of the preceding fiscal year.
Workers’ remittances remained $6.26 billion in the first four months of 2016-17, down 4% from the same period of the last fiscal year when they totalled $6.51 billion.
ILLUSTRATION: NABEEL AHMED
Pakistan received remittances amounting to $19.9 billion in 2015-16, up 6.4% from the previous fiscal year. At a time when the country’s exports are on a decline, the current slowdown in remittances has become critical for the country. Moreover, the country has also been facing low levels of foreign direct investment.
Some analysts say declining exports and slowdown in remittances may create major problems for the government because the country heavily depends on remittances as they play a major role in stabilising the country’s external sector.
Remittances make up for almost half of the import bill and cover the deficit in the trade of goods accounts.
Courtesy : Express Tribune