KARACHI: Despite significantly large growth in remittances, the country’s current account deficit widened by $95 million in January, reaching $2.307 billion in the first seven months (July-Jan) of this fiscal year.
The State Bank of Pakistan (SBP) reported on Thursday that the current account deficit still has strong presence in the balance sheet of the country, mainly on account of low exports and increased imports.
Overseas Pakistanis sent record $10.3bn remittances during July-Jan, but it could not help reduce the current account deficit, which was almost equal to the deficit of $2.537bn during the same period of 2013-14.
Imbalances on trade in goods increased to $10.696bn compared to $10.109bn a year earlier, showing the poor exports performance and unwanted growth in the volume of imports.
The deficit could be painful for the economy if its size increases or even remains the same at the end of this fiscal year.
The country paid about $7bn in debt servicing during the last fiscal year. The debt repayments could rise further this year and the deficit could escalate the problem for managing the external account.
The country has more than $16 billion foreign exchange reserves which are fairly higher, but even they look insufficient given the large size of debt servicing.
The SBP report shows that the services sector performed better than last year but the imbalances remained high. The trade of services was in deficit of $1.461bn during July-Jan compared to $1.827bn a year ago.
Export of services increased to $3.16bn in this period from $2.77bn last year. Import of services was almost the same at $4.6bn.
Foreign direct investment: According to the recently issued report of the State Bank, the foreign direct investment (FDI) into the country fell slightly to $545m in July-Jan from $553m in the same period of last year. It shows that the country did not get help from foreign investment to build its reserves.
Despite high reserves the pressure has started mounting on exchange rate and the local currency has been slowly losing weight against the US dollar.
The Forex Association reported on Thursday that the dollar was traded at Rs101.72 in the inter-bank market and Rs101.80 in the open market. Analysts said the country must manage the available reserves to limit the growing current account deficit that demands a must growth in exports.