KARACHI, Feb 12: Higher foreign investment may provide some relief to government, but the rising current account imbalance has posed a serious threat to the economy.

The current account deficit of the country increased by over 46 per cent during the first half of the on-going fiscal 2006-07 and the figure rose to $4.209 billion.

Though it is not surprising that the current account deficit has increased, the rate of its increase is a matter of concern.

The main reason for the large current account deficit is the rising trade gap. The balance sheet showed that in all major sectors, the country was on the negative side.

Trade gap during the same period rose by 22.7 per cent to $5.034 billion as against $4.102 billion in the corresponding period last year.

The worst part of the trade deficit was unexpected low export growth and high import growth.

It also reflects slow industrial and manufacturing activity which would generate unemployment.

The imbalances in services sector were also significant during the period as services credit were much lower than the services debit which means higher outflows and lower inflows in respect of services.

The latest figures of foreign investment issued by the State Bank showed that the foreign investment rose by 68 per cent during July-December.

Substantial high foreign investment is quite eligible to help the government to meet the current account gap. “The unreliable foreign investment is not the answer to the question of ever-increasing current account deficit,” said an analyst, adding the high export growth was the only reply to this serious threat.

Since investors have all rights to withdraw their investment and take back out of the country without any legal hurdle, it is unreliable, he said.

Foreign portfolio investment rose to $620 million during the six months and foreign direct investment reached $1.872 billion.

Interestingly, there were no inflows through privatisation which had been a part of foreign direct investment.The government has sold Global Depository Receipt (GDRs) of Oil and Gas Development Company (OGDCL) to earn about $800 million and the amount was shown as foreign private investment.

Prime Minister Shaukat Aziz had stated recently that the foreign investment would reach $6 billion by the end of this fiscal. This will be highly encouraging for the government as the rising current account deficit has been posing serious challenges for last five years.

“Foreign direct investment is still focused to just few sectors which require to be diversified and it can only happen once all major sectors, including agriculture sector, attract foreign investment,” said Aamir Aziz, an analyst.