KARACHI: Pakistan’s current account deficit amounted to almost $2.5 billion in July-May, according to data released by the State Bank of Pakistan (SBP) on Tuesday.
The current account deficit expanded 1.2%, or $29 million, year-on-year in the first 11 months of the fiscal year. It amounted to over $2.4 billion in the same period of the preceding fiscal 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.
Although the year-on-year expansion in the current account deficit seems nominal, analysts believe Pakistan should ideally have turned it into a surplus in the wake of record-low oil prices for the most part of 2015-16. However, SBP data shows falling exports have largely offset the gains from lower oil import bill, resulting in the country still struggling to achieve a surplus in its current account balance.
The country’s current account balance was in surplus for April ($23 million), but the last month saw the deficit ballooned to almost $800 million owing to a one-fourth increase in imports of goods in May.
As a percentage of the gross domestic product (GDP), the current account deficit remained 1% in 11 months of 2015-16. The deficit recorded no change on a year-on-year basis, which shows Pakistan has largely missed the opportunity to curb current account deficit despite a massive drop in global oil prices.
Balance of payment
Pakistan’s total imports of goods in Jul-May were valued at $36.5 billion as opposed to $37.7 billion in the same 11 months of the preceding fiscal year, which shows an annual decrease of 3.1%.
Pakistan exported goods worth $20.1 billion in Jul-May as opposed to the exports of goods valuing almost $22 billion in the same period of the last year, reflecting an annual decline of 8.4%. Not only Pakistan’s exports are declining, SBP data shows their rate of decline is higher than the corresponding decrease in imports.
Workers’ remittances remained $17.8 billion in July-May, up 5.6% from the same 11 months of the last fiscal year. Remittances have played a significant role in stabilising the country’s external sector, as they make up for almost half of the import bill and cover the deficit in the trade of goods accounts.
According to the Economist Intelligence Unit (EIU), an international forecasting and advisory service, Pakistan’s merchandise trade deficit is expected to widen over the coming years as a result of greater demand for imported investment and consumer goods.
The import bill will increase further, as oil prices recover post-2016, the EIU said in a report in March. It added that exporters in Pakistan will struggle going forward owing to persistent power shortages and poor basic infrastructure.