KARACHI: Pakistan’s current account deficit widened by 91% in the first five months (Jul-Nov) of 2016-17, increasing to $2.6 billion from $1.36 billion in the same period last year, according to data released by the State Bank of Pakistan (SBP) Tuesday.
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.
In the first four months (Jul-Oct) of 2016-17, current account deficit widened by 63% compared to the same period of last year.
Increase in current account 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 because it is led by investments instead of consumption.
Due to the construction phase of China-Pakistan Economic Corridor (CPEC), Pakistan is witnessing more outflows than inflows. The investments are being made due to which the country is witnessing a current account deficit in the short term, but the situation will change once the returns of CPEC start coming in, experts say.
As a percentage of gross domestic product (GDP), the current account deficit widened to 2% in the first five months of 2016-17 as opposed to 1.1% in the same period of the last fiscal year.
Pakistan exported goods worth $8.7 billion in the first five months of 2016-17 as opposed to exports, totaling $8.83 billion in the comparable period of fiscal year 2015-16, reflecting a year-on-year decrease of 1.47%.
The value of goods exported in November 2016 was recorded at $1.84 billion, up just 0.5% compared with $1.83 billion in October 2016.
Pakistan’s total imports of goods in the first five months of 2016-17 were $17.3 billion as opposed to $16.4 billion in the comparable period of 2015-16, which means an annual increase of 5.5%.
On a month-on-month basis, the value of goods imported rose by a significant 13%, as Pakistan imported goods valuing $3.77 billion in November 2016 compared with $3.34 billion in October 2016.
Balance on trade in both goods and services at the end of the first five months clocked up at -$10 billion compared with the deficit of $8.58 billion recorded in the same period of the preceding fiscal year.
Workers’ remittances remained $7.87 billion in the first five months of 2016-17, down 1.6% from the same period of the last fiscal year when they totalled $8 billion.
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. Remittances make up for almost half of the import bill and cover the deficit in the trade of goods accounts.
Moreover, the country has also been facing low levels of foreign direct investment (FDI).
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.
courtesy : Express Tribune