KARACHI: Pakistan’s current account deficit in the first month of 2015-16 remained $159 million, according to data released by the State Bank of Pakistan (SBP) on Thursday.
The current account deficit shrank $661 million year-on-year in July, as it amounted to $820 million in the same month of the preceding fiscal year. The notable improvement in the current account balance in the last month was mainly because of shrinking trade deficit in both goods and services.
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 3.5% in July 2014 to 0.6% in July 2015.
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 were $3.5 billion as opposed to $4 billion in the same month of the preceding fiscal year, which shows an annual decrease of 11.6%.
Pakistan exported goods worth over $1.7 billion in July as opposed to the exports of goods valuing over $1.9 billion in July 2014, reflecting an annual decline of 7.8%.
After accounting for 94% annualised surge in the value of services exported in July, the overall balance of trade in both goods and services clocked up at -$1.7 billion last month. This reflects an improvement of $791 million on a year-on-year basis, as $2.5 billion deficit was recorded in the balance of trade in both goods and services during July 2014.
Workers’ remittances remained $1.6 billion in July, up 0.9% from the same month of last year. Remittances have played a significant role in improving the country’s external sector, as they make up for almost 47% of the country’s import bill and cover more than 97% of the deficit in goods and services accounts.
According to KASB Securities analyst Sarah Mazhar, current account is expected to remain balanced in 2015-16. In fact, 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.