KARACHI: Pakistan’s FOREIGN EXCHANGE reserves have crossed $15 billion, but the current account deficit further widened in the first five months of this fiscal year.
The State Bank of Pakistan reported on Tuesday that the current account deficit widened by $200 million to $2.345bn during July-November period of 2014-15 mainly due to higher imports and decline in exports. The rising external trade gap has neutralised the impact of huge inflow of remittances along with other inflows.
The SBP reported that imports were almost double the exports during the period as these rose to $18.55bn against exports of $9.94bn. Exports dropped by $198m while imports were up by $1.035bn.
During the five months of this fiscal year, exports of services increased by $373m to $2.376m while imports remained almost static at $3.372bn. Last year these were $3.311bn.
Despite higher export of services, impact on current account deficit was insignificant while the main reason for this increase in services export was government’s logistics support for Nato forces in Afghanistan.
The government earned $735m for logistic support while it received $322m in the same head during the same period last year.
The trade gap is increasing alarmingly, and is not allowing the country to come out of the prevailing current account deficit. The gap between imports and exports of goods and services during the July-Nov period increased by $9.6bn.
The same gap in FY14 rose to $19.2bn which was significantly higher than the gap in FY13 which was about $16.9bn.
Considering falling OIL PRICES, the import bill could fall in the remaining months of the current fiscal year. The oil import bill in FY14 was $14.7bn.
If OIL PRICES remain around $60 per barrel, the total bill for FY15 could be around $10bn or less. It would help the country reduce trade imbalance as well as the current account deficit.
At the same time, Pakistan may benefit from falling COMMODITY PRICES in the international market that could further reduce the import bill.
Experts believe that the prevailing low cotton prices would help the textile industry boost exports and earn more than last year.
The government has reduced the power tariff that would reduce the cost of production and ultimately help exporters to expand their operations.
The State Bank recently reduced the interest rate while more cut is expected next month which would be an incentive for manufacturers and exporters to improve their performances.