KARACHI: Pakistan’s current account deficit in the first quarter of 2015-16 remained $109 million, according to data released by the State Bank of Pakistan (SBP) on Monday.

The current account deficit shrank 93.3% ($1,522 million) year- on-year (YoY) in July-September, as it amounted to $1.63 billion in the same three-month period of the preceding fiscal year.

The notable improvement in the current account balance in the last three months was mainly because of shrinking trade deficit in both goods and services. It amounted to $4.6 billion in Jul-Sep as opposed to $6.7 billion recorded over the comparable period of the last year.

A deficit or surplus reflects whether a country is a net borrower or lender of capital with respect to the rest of the world.

As a percentage of the gross domestic product (GDP), the current account deficit decreased from 2.4% in July-September 2014 to 0.1% in July-September 2015.

The trend

The country recorded a current account deficit of $2.28 billion in the last fiscal year, which was significantly smaller than the deficit of $3.13 billion in 2013-14. Analysts believe the encouraging trend in the country’s current account balance in the recent past is a consequence of major inflows under the Coalition Support Fund (CSF), substantial growth in workers’ remittances and a sharp reduction in the oil import bill.

Pakistan’s total imports of goods in July-September were valued at $9.9 billion as opposed to $12 billion in the same months of the preceding fiscal year, which shows an annual decrease of 17.2%.

Pakistan exported goods worth over $5.4 billion in July-September as opposed to the exports of goods valuing over $5.9 billion in the same three months of 2014, reflecting an annual decline of 9%.

Sources of revenue

Workers’ remittances remained $4.9 billion in July-September, up 4% from the same months of the last year. Remittances have played a significant role in improving the country’s external sector, as they make up for almost 50% of the country’s import bill and fully cover the deficit in goods and services accounts.

According to KASB Securities analyst Sarah Mazhar, the current account is expected to remain balanced in 2015-16. She says a “minor” surplus of $0.3 billion can be expected in the current fiscal year given the savings of $3.5 billion in oil imports.

The average landed price of oil in the last fiscal year had clocked up at $85 per barrel. KASB Securities estimates the oil price will average $57 per barrel onwards, giving considerable room for oil import savings.

However, Mazhar says trade deficit continues to face potential risk from two major drivers, namely international commodity prices and Pakistan’s lower export competitiveness following the rupee’s appreciation against the dollar.

In the most recent monetary policy statement, the SBP noted that a current account deficit of the size of end-fiscal 2015 “seems manageable” in 2015-16. “This is supported by the expected surplus in the capital and financial account in 2015-16 on the back of planned Euro/Sukuk bonds inflows, official disbursements, and the remaining IMF funding under the EFF programme,” it said, adding that the lower global oil prices have yet to find their bottom.

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