KARACHI, May 7: Pakistan posted a big $1.338 billion current account deficit in nine months of this fiscal year against a $2 billion surplus in a year-ago period. Indications are that the current account deficit will rise to $2 billion at the end of the fiscal year in June. That would be a major shift in the balance of payments structure, as in the last fiscal year the country posted a current account surplus of $1.8 billion.

A closer look at the data released by the State Bank shows that it is a big trade deficit that has turned the current account surplus into deficit. In July-March 2004-05, the trade deficit stood at $3.5 billion, more than five times the deficit of $685 million seen in the comparable period of the last fiscal year.

Imports during July-March 2004 totalled $14.1 billion and exports stood at $10.6 billion, both free-on-board values. In the similar period of the last fiscal year, the imports had totalled $9.911 billion and the exports $9.226 billion.

Since the imports in this fiscal year are projected to reach $19 billion and the exports are estimated at $14 billion, Pakistan is poised to witness a $5 billion trade deficit at the least. Some analysts say the deficit may reach $5.5 billion or just fall short of $6 billion.

Even if the trade deficit totals $5 billion, which is the most conservative estimate, the current account deficit will easily reach $2 billion or even exceed it. What makes this a likely scenario is the fact that the deficit in services account has also expanded rapidly so far during this fiscal year. In nine months to March 2005, Pakistan saw a service account deficit of $2.423 billion, almost four times the deficit of $639 million registered in a year-ago period.

Whereas the dramatic rise in trade deficit is attributed to a host of factors, including faster economic growth, soaring oil and steel prices in international markets, etc., the expansion in services deficit is rooted in liberalization of foreign exchange regime and a higher-than-estimated growth of GDP.

Most recent data available on individual items of services account deficit relates to the first and second quarter of this fiscal year. Third quarter’s data are yet to pour in. In the firs quarter, the services account deficit was $628 million, and in the second quarter it was $914 million.

In both the quarters, it was higher expenses on transportation of external trade and overseas travelling by people living in Pakistan that caused a services account deficit. And whereas the higher freight charges are attributable to faster economic growth, the increased spending on overseas travelling is a direct result of the liberalization of foreign exchange quotas.

In nine months to March 2005, the trade and services accounts put together showed a combined deficit of $5.925 billion, more than four times the deficit of $1.324 billion recorded in the same period last fiscal year. This huge trade and services account deficit mostly offset a big rise in the current transfers to $6.368 billion in July-March 2004-05 from $4.943 billion in a year-ago period, leaving the current account deficit at $1.3 billion plus.

Current transfers showed a rising trend as workers’ remittances or foreign exchange sent back home by overseas Pakistanis rose to $3.05 billion in nine months to March 2005 from $2.875 billion in a year-ago period. Foreign currency deposits held by the resident in Pakistan also went up to $426 million from $262 million during this period.

A huge current account deficit took its toll on the health of the rupee in nine months to March 2005, forcing it to shed more than two per cent of value against the US dollar despite the fact that from November 2004 the central bank started selling dollars to prop it up. The practice still continues.