Current account deficit mounts to $2.1 billion

LAHORE - Pakistan posted a glaringly high current account deficit (CAD) of $2.1 billion (0.6 percent of GDP) in July. Even though exports were up 26 percent to $1.8 billion, imports were up by a massive 51 percent to $4.7 billion in July, according to the central bank data.

Resultantly, trade deficit for the month was recorded at $2.9 billion, up 80 percent over last year. This high trade deficit has effectively eclipsed remittances, which were up 16 percent to $1.5 billion. Given the large CAD and few inflows in the financial account, the overall balance of payments have also declined by $1.5 billion, which is reflected in the ongoing decline in the country’s foreign exchange reserves. The country’s foreign exchange reserves are down to $19.9 billion (as of August 11), down 6.8 percent from $21.4 billion June end. While the central bank reserves have fallen 13 percent to reach year low of $14 billion as of August 11 which is three-month of import cover.

It should be noted that the country posted a higher than expected CAD of $12.1 billion (4.0 percent of GDP) during the last fiscal year. “We expect this year’s CAD to be around $16 billion (5.0 percent of GDP), highest since FY08, which will be subject to revision if the above trend persists,” experts said. Experts are of the view that the government needs to take assertive actions as soon as possible to arrest the CAD and to control the decline in foreign exchange reserves.

According to latest figures, the country’s exports witnessed 10.58 percent increase during the first month of the ongoing fiscal year (2017-18), compared to the corresponding month of last year. Pakistan exported goods worth $1.631 billion in July 2017 compared to the exports of $1.475 billion in July 2016, showing upward growth of 10.58 percent. The merchandise imports during the month under review also increased by 36.74 percent compared to July 2016.

The imports into the country during July 2017 were recorded at $4.835 billion compared to the imports of $3.536 billion, the data revealed. The trade deficit during July 2017 was recorded at $3.204 billion, which showed growth of 55.46 percent when compared to the deficit of $2.061 billion during July 2016.

Meanwhile, on month-on-month basis, the exports from the country witnessed negative growth of 14.70 percent in July 2017 when compared to the exports of $1.912 billion in June 2017. The imports into the country increased by 6.64 percent in July 2017 when compared to the imports of $4.534 billion recorded during June 2017, according to the data.

Industry experts asked the commerce ministry to contribute to the national economy through trade facilitation and liberalisation, improve export competitiveness and reduce the cost of doing business. The government should provide direction and diversification to internal trade for enhancing supply chains to enhance the country’s exports.

“We should explore new trade avenues and markets in different regions to get access to these markets for promotion of country’s trade. The new trade policy should mainly target the international and internal trade for improving supply chain, enhancing use of technology and providing competitiveness,” experts said.

According to experts, rupee devaluation, regulatory duty on non-essential imports, export promotion, dollar bonds, bilateral borrowing etc could be some of the measures that the government must take immediately. The burgeoning CAD has led to concerns on the economic front, which is taking a toll on the local equity market amid the ongoing fluid political situation.